Wednesday, September 4, 2013

Furhter Fall In GDP Growth Appears Unavoidable

GDP growth may slip below 1-2% if CAD halves: Jefferies

A fall in the current account deficit to $30-$50 billion, or about half of current levels, has the potential to reduce India's GDP growth rate to 1-2 per cent, Jefferies wrote in a note. 

Jefferies argued that the CAD compression can have a similar negative economic impact such as monetary or fiscal tightening, by the impact that falling imports, which it estimates account for nearly 16 per cent of India's economy, can have on domestic demand and employment. 

"We maintain that India's GDP growth is headed for a far steeper decline than the already muted expectations, as the impact of the currency/CAD-related damage has barely started," analysts at the investment bank wrote. 

Jefferies says that last week's June-quarter growth data was worrying as only two sub-components seen growing above the headline mark of 4.4 per cent, with growth coming from services and government spending. 

Several foreign brokerages including CLSA, Nomura, JP Morgan, and HSBC have cut growth estimates for India by up to 2% due to tightening financial conditions, slowing industrial production and increasing economic uncertainty. 

Most of the brokerages now expect the country's gross domestic product Indian economy to grow at 3.7% to 4.2% in the financial year 2013-14, a slash from earlier forecasts between 5% and 5.5%, after the country's GDP grew at a four-year low of 4.4% in the first quarter, down from 4.8% in the January-March quarter. 

This is the third time several top brokerages are downgrading their GDP estimates this year.

Analysts feel GDP growth in second quarter slowed more than expected and things are likely to get worse in the third quarter when government spending, which maintained a blistering pace, will probably slow down as concerns about fiscal slippage increase. They say the benefits of good monsoon are likely to be more than offset by the sharp depreciation of the rupee. 

For the financial year ended March 2013, India grew 5%, the lowest in 10 years as India Incpostponed much their expansion plans citing high interest cost and weak demand. The rupee—the worst performer among Asian currencies—has declined more than 17% against the US dollar so far. During the credit policy in July, the RBI had announced a series of measures to stabilise rupee. 

This pushed short-term interest rates by about 3 percentage points. Many brokerages cut their GDP growth forecast immediately after RBI announced the monetary-tightening measures.

Gloom and doom view on Indian economy overdone: Raghuram Rajan

NEW DELHI: While acknowledging that the country faces challenges, Raghuram Rajan,RBI Governor on Wednesday assured that Indian economy remains fundamentally strong. Addressing the media soon after taking charge at RBI, Rajan said, "This is not an easy time to take charge as RBI Governor."

Rajan said that while the primary objective of the central bank remains monetary stability, inclusive growth & development and financial stability also form part of RBI's role. "The financial markets are volatile, there is domestic uncertainty," he said. "The central bank should never say never," he added.

Rajan emphasised the need on transparency, predictability in RBI's policy making. "RBI should be a beacon of stability as to its objectives," he said. There is a need for faster & broad based inclusive growth, he added.

Rajan went on to say that even as growth from large companies has slowed down, rural areas have been contributing to the economy. "RBI can accelerate financial development through inclusion," he said.

Answering reporters, Rajan said that the gloom and doom view on the Indian economy is overdone.

On the issue of new bank licences, Rajan said that a committee led by Bimal Jalan will screen bank licences. "We hope to announce new licences by January 2014." he said.

Rajan will make his first monetary policy statement on September 20.

Raghuram Rajan took over as the new Governor of the RBI. Rajan, 50, an economics professor who also served as chief economist at the International Monetary Fund, took charge from D Subbarao.

The duo shook hands warmly and hugged after Rajan signed papers taking over as the 23rd Governor of the central bank.

"Ten minutes ago, I handed over charge to Raghuram Rajan," Subbarao said after stepping out of Mint Road. "The country could not have asked for a more capable person to lead the RBI in these most difficult times."

No comments: