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Global financial majors lower India growth prospects
In their reports to clients worldwide, most of them blamed policy inaction by the government as a major roadblock to the Indian economy, which had expanded by 8.4% for two consecutive years - 2009-10 and 2010-11 - before plunging to 6.5% in the last fiscal. JPMorgan and CLSA were also bearish on India.
The 5.3% January-March 2012 quarterly growth, again a nine-year low, was "a shock to markets since it was lower than even the most pessimistic forecast and suggests the driving force behind the India growth story - the consumer-- has lost momentum," Standard Chartered said in its research report.
The release of GDP data yesterday, it said, "should act as a wake up call for all authorities, especially the government. However, with a fractured coalition at the Centre and the ongoing policy paralysis which has plagued the economy since mid-2010, the market is likely to pin most of its hope on action by the RBI".
The RBI is set to review interest rates on June 18. Standard Chartered lowered its 2012-13 GDP growth outlook for India significantly to 6.2% from 7.1%. Morgan Stanley scaled down growth projection to 5.7% from 6.3% for the current fiscal stating "a stagflation type environment is emerging".
In the stagflation situation, while inflation rises there is stagnation or lowering of economic expansion. It said the banking system stress remains a concern. Earlier last week, Finance Minister Pranab Mukherjee too had asked banks to pull up socks and reduce their non-performing assets in the wake of difficult economic situation.
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