Nomura cuts India GDP growth forecast

Nomura has also cut its India GDP forecast for 2013-14 to 6.6 per cent form the earlier 6.9 per cent.

The government is aiming at GDP growth rate of about 7.6 per cent this fiscal. India’s economic growth rate slowed to 6.5 per cent in 2011-12 from 8.4 per cent in the previous two fiscals.

The global firm said India’s monetary and fiscal policies are at “loggerheads” and in “deadlock”.

It further said India government policies remain inflationary,reducing the scope for rate cuts,hurting growth and in turn exacerbating the fiscal deficit.

“In our view,the longer the economy stays in the current deadlock,the bigger the policy shock that will be required to get out,” Nomura added. On wholesale price based inflation,Nomura said that it has revised upward its average forecast to 7.6 per cent for the current fiscal from earlier 7.1 per cent due to higher food prices and rupee depreciation.

It has also revised upward its fiscal deficit forecast for India to 5.8 per cent of GDP in the current fiscal from 5.2 per cent. Government aims to bring down the fiscal deficit to 5.1 per cent in 2012-13 from 5.76 per cent in the previous fiscal.

Nomura’s observations comes against the backdrop of global agency Moody’s retained its stable rating outlook for India.

The government is targeting to end the fiscal with a 5.1 percent fiscal deficit,after overshooting the 4.6 percent target by a wide margin.

Nomura said longer the continuing delay over reforms will aggravate the situation and will only require even bigger measures to get the economy back on the higher growth trajectory.

“The longer the economy stays in the current deadlock,the bigger the policy shock that will be required to get out,” Sonal Varma said.

However,on a positive note,she said the market still expects that the current gloomy news like GDP growth at a nine-year low,hammering of the rupee (it lost 7.4 percent since January 1 and 30 percent year-on-year) and warnings from rating agencies serve as a wake-up call and a new finance minister will usher reforms after the presidential election,she notes.