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The positive market sentiment and inflows on the back of the recent reform push notwithstanding, HSBC Bank has decided to maintain the GDP target for India at 5.7 per cent for this fiscal.
Recently the Government approved a spate of measures, including allowing FDI in retail and aviation and approving a diesel price hike, in a bid to turbo charge the economy and shake off accusations of policy paralysis.
HSBC Chief Economist for India and ASEAN Leif Eskesen said: “These reforms were expected but the timing and magnitude was the question. While these reforms are good and were needed, concerns still remain on their implementation and sustainability of the reform momentum. We would see a lag effect to see the impact of the reforms but in the short run there would be impact on growth because of sentiment improvement which we have already seen in terms of the stock market capital flows and exchange rate stabilisation.”
Economic conditions
“We expect the reforms to continue and with global economic conditions gradually stabilising next year investment would pick up. Hence we have revised our GDP estimate for next fiscal to 6.9 per cent. There is a need to lift growth on the supply side through structural reforms,” he added.
On expectations of a rate cut in the upcoming monetary policy review by the RBI, he said that it would be a close call as inflationary pressures continue to linger though the possibility of a rate cut had increased on the back of the recent spate of reforms.
“It is difficult to build a strong case for a rate cut till the country sees signs of inflation risk receding and more fiscal consolidation steps by the government are undertaken beyond the diesel price hike to complement the monetary policy,” he added.
Rupee movement
On the strengthening in rupee exchange rate, he said HSBC had pegged the rupee exchange rate to settle at Rs 52 a dollar post reforms. “Going ahead we have set the rupee target at Rs 49 by December 2013,” he said.
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