HSBC Cuts India's GDP Forecast For Fiscal 2013, 2014 Citing Lack Of Momentum In Reforms

By Sreeja VN | September 13 2012 4:31 AM

HSBC has cut its India GDP forecast for the fiscal 2013 to 5.7 percent from the previous forecast of 6.2 percent, citing "the lack of reform traction" and a more "challenging" global economic state of affairs.

Reuters

Rupee

Sponsorship Link

In a note released Thursday, the financial services company downgraded the country's GDP growth forecast for the fiscal year 2014 to 6.9 percent from 7.4 percent, Reuters reported.

HSBC pointed out that the Reserve Bank of India would not be ready to cut the key interest rates immediately.

India's economic growth hit a three-year-low in the quarter ending June 30, 2012, and a number of financial institutions cut their economic growth forecast for the country in the last quarter.

India's industrial output grew 0.1 percent in July against the analysts' expectation of a 0.5 percent growth compared to that in the same period a year ago, data released Wednesday by the Central Statistics Office of the Ministry of Statistics and Program Implementation showed.

Though the growth rate was better than the contraction of 1.8 percent in the previous month of the year, it has disappointed the economists who were expecting an improvement in the economic sector.

Further, the global economic scenario and the euro zone debt crisis also affected the Indian manufacturing sector and exports due to the weak external demand.

The HSBC manufacturing Purchasing Managers' Index released Monday showed that India's manufacturing sector growth declined to a nine-month low in August as exports showed a decline for the second consecutive month, indicating the weak external demand due to the euro debt crisis.

Earlier this month, Morgan Stanley cut India's economic growth forecast to 5.1 percent from the previously projected 5.8 percent, citing low private investment and poor government finances.

It pointed out that the decline in private investment and the weak external demand as the major challenge for the economy. The high fiscal deficit and the strong wage growth in the rural areas led to a "stagflation-type environment".

The RBI has been refusing the industry's demand for easing the monetary policy, citing high inflation. The analysts expect the bank to continue with its "no rate cuts" policy till the inflation cools down to the comfort levels.