US-based investment banker Morgan Stanley today cut India’s GDP forecast to 6.3 per cent from its earlier projection of 7 per cent for 2012-13.
“On a financial-year basis,we have reduced our GDP growth estimates to 6.3 per cent and 6.9 per cent in 2012-13 and 2013-14,respectively,from our earlier estimates of 7 per cent and 7.5 per cent,” Morgan Stanley said in a report.
“With policy makers continuing to delay action to address the unsustainable bad mix of growth,we now think that GDP growth is likely to face another leg down. A deeper and longer growth slowdown is up ahead,” it said.
Morgan Stanley said growth slowdown is likely to be more than consensus expects and that the duration of the slowdown will also be longer than earlier estimated.
Speaking on the macro imbalances in the country,it said the current account deficit is at all-time high levels,while inflation is still significantly above the Reserve Bank’s comfort zone.
“We expect the RBI to lower repo rates by a further 100 basis points (cumulative 150 basis points in this cycle) to 7 per cent by March 2013…,” it said.
However,it would be difficult to lower the cost of capital in the near term as persistent Balance of Payments (BoP) stress means that the RBI will face the impossible trinity of managing the exchange rate and controlling the interest rates when capital flows are volatile,it said.
Concerned over high inflation and falling value of rupee,Planning Commission Deputy Chairman Montek Singh Ahluwalia had recently said it is difficult for India to achieve 7.5 per cent economic growth during the current fiscal.
“The Finance Ministry has said they are hoping for a 7.5 per cent growth this year. That is going to be tough but not impossible,” he had said last week.
He had said while the last quarter did not show robustness,it remains to be seen how growth in the first quarter of the current fiscal will fare.
“It is going to be a slow transition,” he had said,adding that in India “we need to get out of a what looks like a decelerating growth phase … and move to the growth path.”
Economic worries over the past few months like rupee depreciation,high inflation and current account deficit are not helping India,which has been trying to get back on the pre-global crisis growth rates of 8-9 per cent.
The rupee has depreciated by 11 per cent against dollar since March. At the same time,inflation in April rose to 7.23 per cent against 6.89 per cent a month ago.