Macquarie cuts India growth to under 7

However,it has maintained its GDP growth projection for the country in the current fiscal,ending March 2012,at 7.4 per cent.

In a research note,Macquarie has said that its stance on the Indian GDP growth outlook for FY13 has changed from 8216;mild recovery8217; to 8216;continued sluggish8217; growth,in the context of a weak global economic environment.

8220;While the global environment is likely to remain uncertain,we believe that domestic factors will dominate the growth outlook,8221; it said.

Even if the private corporate sentiments improve in the second half of FY13,it will be reflected in the financials of the companies only by FY14,as investment projects have a long gestation period,Macquarie added.

Weak investor confidence on governance issues,higher interest rates and higher inflationary pressures,hindrances to project execution,uncertainty about the global economy and weak global capital markets are increasing funding risks,the report said.

Moreover,elections and political issues are likely to further crowd out private corporate capex as the government will largely pursue populist reforms over the next 6-8 months and could delay the tough reforms,it noted.

There are five state elections due in 2012,including Uttar Pradesh,which happens to be one of the most populous states in the country and is regarded as a very important state for the national political scenario. besides,national parliament elections are also due in 2014.

8220;There is a slump in overall consumption level,besides,the uncertainty in the global economic environment will likely result in further slowdown in India8217;s export growth over the coming months,8221; the report said.

However,8221;the pursuance of the government8217;s loose fiscal policy and rise in rural wages will continue to lend support to overall demand.8221;

Headline inflation in India as measured by the Wholesale Price Index WPI remained above the RBI8217;s comfort zone of 5-5.5 per cent over the last 22 months and has averaged 9.5 per cent over this period.

8220;We expect WPI inflation to remain sticky at around the 7-7.5 per cent level in FY13,8221; Macquarie said adding that 8220;a further increase in minimum support prices by the government,high rural wages and persistent input cost pressure will mean that food primary and manufactured WPI inflation should remain high despite normal monsoons.8221;

Regarding interest rates,the report said India is 8220;near the peak of rate increases8221; and interest rates are likely to remain at these high levels over the next six months.