Kotak cuts FY13 GDP forecast to 5.1%; sees slow recovery

Moneycontrol Bureau

Brokerage house Kotak Securities has cut its forecast for FY13 GDP growth to 5.1 percent from 5.6 percent earlier, after the government on Wednesday estimated the figure at a decade-low of 5 percent.

Also Read: 5% GDP below expectation; efforts on to revive growth: FinMin

According to Kotak economist Indranil Pan, the economy is facing a double whammy of falling consumption and lower government expenditure. Finance minister P Chidambaram has been cutting back on the Plan expenditure of many ministries as he tries to achieve the fiscal deficit target of 5.3 percent for the fiscal.

"While the floor to the domestic consumption appears to have been hit, there are likely constraints for the government expenditure to improve. The savings-to-investment gap has been on the rise, a reflection of which can be seen in the high CAD/GDP," says the Kotak note, adding that unless the CAD/GDP ratio declines, it could be difficult for the economy to pull-back on its savings dynamics, hence restricting the growth potential of the economy.

"While the negative sentiment has been prevented to a large extent and some economic indicators appear to be relatively better, conditions are still not ideal for a pick-up in private investments. Thus, we expect GDP growth for FY14 to recover to 5.7 percent, while better performance will hinge on  global conditions and domestic policy momentum," the note said.