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HSBC today said India’s annual and sequential growth will remain “quite moderate” in coming quarters and lowered the GDP growth projection for this fiscal to 6.2 per cent from 7.5 per cent earlier.
For financial year 2013, HSBC expects growth of just 6.2 per cent (as against 7.5 per cent previously) and for fiscal year 2014 it believes India’s growth rate it will recover to around 7.4 per cent (lower than 8.2 per cent previously).
“In light of the weaker starting point for the year, the slower progress on supply—side reforms than previously expected and the more protracted global economic recovery, we scale back our growth forecasts notably,” HSBC Economist, Mr Leif Eskesen, said in a report.
HSBC said, “Administrative hurdles and domestic policy paralysis will continue to hold back investments and limit the scope for a near-term improvement in growth momentum.”
India’s annual and sequential growth will remain “quite moderate” in coming quarters, HSBC said, adding that only some scope for a gradual recovery in the growth numbers is likely during the second half of this fiscal.
According to HSBC, the RBI may “feel compelled” to pull the trigger and cut rates again on Monday, most likely by 25 basis points, despite sticky and elevated inflation.
However, HSBC warned that “this (rate cut) would be the wrong medicine to cure the growth ails; instead, a heavy dose of structural reform is needed.”
“Teasing up demand would only risk generating more inflation. We think deeper structural reforms are needed instead, and soon,” HSBC said.
India’s January-March 2012 GDP number was weaker than expected and Industrial production in April was broadly flat over the previous month and last year.
India’s potential growth rate has taken a hit on the back of insufficient progress on deeper structural reform. Growth eased to 5.3 per cent against 6.1 per cent in Q4 2011 and the lowest reading since 2004.
But, inflation is still running high. May WPI inflation rose to 7.55 per cent against 7.23 per cent in April. CPI inflation exceeds 10 per cent.
Though moderate growth and lower oil prices are likely to ease inflation to some extent, there is an upside risk from the weak exchange rate, besides, tight capacity will keep inflation pressures simmering, HSBC said.
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