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May 31, 2012, 12.42 PM IST
Dismal Q4 GDP numbers of 5.3% were announced on Thursday and the GDP for FY12 stood at 6.5%. In an interview with CNBC-TV18, Leif Eskesen, Chief Economist for ASEAN and India, HSBC said policy paralysis in India is not new and its effects are just being felt now.
After economists gave a slew of FY13 GDP downgrades, the Indian economy seems to be going through a rough patch. Dismal Q4 GDP numbers of 5.3% were announced on Thursday and the GDP for FY12 stood at 6.5%.
In an interview with CNBC-TV18, Leif Eskesen, Chief Economist for ASEAN and India, HSBC said policy paralysis in India is not new and its effects are just being felt now. He also stressed on the need for a lot more action on supply side reforms.
The chronic issues of supply demand still persist in the economy and therefore, he does not see any significant improvement in Q1 GDP growth. However, Eskesen expects GDP growth of around 7% in FY13.
Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.
Q: Everyone is talking about the high possibility of sub 6% take. Where do you stand on what the figure may be for this quarter?
A: We are looking at 6.1% year on year for the quarter and of course the growth number for industrial production is going to remain quite weak. We are looking at just 0.5% year on year. Agriculture is going to hold up reasonably well and on the services side, we still see some resilience in growth. On the higher side it can be 8% for services sector.
What we are going to see is in sequential terms, if you seasonably adjust the GDP numbers, the headline numbers, there would have been a pickup in growth relative to the third quarter of the fiscal. But either way, its still very constrained growth by lagged effect monetary tightening and weaker external environment. That also has an impact on the investment cycle and on exports of course and through the finance channel along with the often discussed issue of policy paralysis.
Q: What do you expect to see in the gross fixed capital formation number? Do you see the decline continuing or a positive reading this time around because last two quarters have been negative?
A: It could be a little bit of a base effect in that side. But the big picture on that side is investment cycle has been hampered in this slowdown. As I said, it was for the reason that I mentioned that has been particularly hurting the investment cycle. Generally speaking, in this quarter and the next couple of quarters, it is going to remain quite subdued, the capital expenditure component of GDP.
You don't really see much of an upside on that until you have more progress on supply side reforms opening up and getting rolled out. You have some easing on the supply side. It is really important for sentiments to have more traction on supply side reforms because that is what's been hurting investment sentiment. We haven't seen anything substantial for years really. The policy paralysis is not a new thing, you are just seeing the effects of it now.
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