Morgan Stanley revises FY10 GDP estimate to 6.4%

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In the past few weeks a lot of good news has hit the Indian economic scene, whether it is Index of Industrial Production (IIP) or inflation numbers or even the way in which the rupee has appreciated.

Commenting on the same, Chetan Ahya, Chief Economist for India with Morgan Stanley, says it has increased its gross domestic product (GDP) growth estimate to 6.4% for FY10 from 5.8% earlier. He expects inflation to go up to 6.5% by March 2010.

According to Ahya, credit growth will rise rapidly to about 17-18% by March 2010.

Speaking on rate cuts, he says the Reserve Bank is likely to increase the cash reserve ratio (CRR) by about 50 basis points in its monetary policy on October 27.
Here is a verbatim transcript of the exclusive interview with Chetan Ahya on CNBC-TV18. Also watch the accompanying video.

Q: Let me begin with the Index of Industrial Production (IIP) numbers - coming in at nearly 10.5% for August, is it making you rethink your industrial output estimates for the year in fact even your GDP numbers?

A: Yes. The numbers were very surprisingly. I think it is not just the month of August ,what we saw this was coming in June-July and now the last month which is August, so this has been happening now for three months. We have also quickly reviewed our number. We have increased our GDP growth for FY10 to 6.4% from 5.8% earlier which is much higher than the consensus number which is ranging around 6% now.

Q: Let me come to the inflation number as well. We saw inflation galloping on a week on week basis, even if on year on year it was in negative terrain, week on week we have seen the index galloping from March almost from March until August but the last two weeks have been benign. They have actually seen fairly steep fall of 0.5% in week on week inflation. Are you getting an impression that maybe things will pan out and what is your inflation forecast for December and March?

A: Just to explain the steep rise and the fall, I think food is the biggest culprit. In the last two weeks there has been some specific global commodities as well which has come off. But we do not think this is the trend. We expect the inflation to go up to 6.5% by March 2010, much against what RBI is expecting it to be 5% because we do think that the base effect which is right now supportive will very quickly recede from now.
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