MStanley cuts India growth f8217;cast to 5.1

The US investment house had previously projected Indian economy to grow 5.8 per cent.

Morgan Stanley cut India8217;s economic growth forecast to 5.1 percent on Monday,the lowest among most private forecasters for the 2012/13 fiscal year,citing a combination of weak external demand,low private investment and poor government finances.

The US investment house had previously projected Asia8217;s third largest economy to grow 5.8 percent in the year ending March. It also reduced its estimate of GDP growth for 2013/14 to 6.1 percent from 6.6 percent.

Economists of Citi,CLSA,CRISIL have also scaled back India8217;s GDP forecast last month.

Economic growth languished near its slowest in three years in the quarter that ended in June but was slightly better than expected at 5.5 percent,provisional data released on Friday showed.

High fiscal deficit,strong wage growth in rural areas and a decline in private investment is leading to 8220;stagflation-type environment8221;,Morgan Stanley said in a report.

8220;In the event of continued inaction from the government,we see very high risk of a potential deeper macro stress scenario,8221; Morgan Stanley said,warning that policy sluggishness could push growth further down to 4.3 percent in the current fiscal year.

In July,RBI revised GDP growth projection to 6.5 percent for 2012/13 from 7.3 percent estimated in April.

Morgan Stanley lowers India8217;s growth forecast to 5.1

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PTI Citing high fiscal deficit and renewed weakness in external demand,Morgan Stanley today lowered India8217;s growth forecast to 5.1 per cent for the current fiscal,from its earlier estimate of 5.8 per cent.

Calling for immediate policy action by the government,it warned that in the absence of such a step the GDP growth could slide even deeper to 4.3 per cent in 2012-13. The brokerage has also slashed the GDP growth forecast for 2013-14 to 6.1 per cent,from 6.6 per cent earlier.

8220;With continued deterioration in the macro environment,we are cutting our FY8217;2013 GDP growth forecast to 5.1 per cent and our FY8217;2014 forecast to 6.1 per cent,8221; Morgan Stanley said.

8220;We believe there is an urgent need for policy action from the government to address the deterioration in the fiscal deficit and persistent pull-back in private investment,8221; it

added.

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Morgan Stanley said that in the event of continued inaction from the government,it saw very high risk of a potential 8220;deeper macro stress8221; scenario,that could entail further significant deceleration in GDP growth to 4.3 per cent in FY8217;13.

High fiscal deficit,coupled with strong rural wage growth and simultaneous decline in private investment,has brought a 8220;stagflation-type environment8221; the report said.

Part of the cut in FY8217;13 estimate reflects the adverse impact of poor weather lower than normal rainfall on summer crop output,which typically accounts for about 7.5 per cent of GDP,Morgan Stanley said.

Its new projection is lower than such revisions last month by a host of global as well as domestic brokerage firms and financial services majors. Moody8217;s,CLSA,Crisil,Citigroup among others have slashed India8217;s growth forecast for this fiscal to about 5.5 per cent.

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The growth rate in the first quarter April-June,according to the data released by the government last Friday,slipped to 5.5 per cent,from 8 per cent in the same period last fiscal.

In its last quarterly monetary policy review,the Reserve Bank had lowered the economic growth projection for the current fiscal to 6.5 per cent from its earlier estimate of 7.3 per cent,stating that the rising government expenditure poses risks to economic stability.