The Telegraph
Since 1st March, 1999
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S&P cuts growth forecast to 8.6%

Mumbai, Oct. 9: Standard & Poor’s today pared its growth forecast for the Indian economy this fiscal to 8.6 per cent from 9.4 per cent last year — and characterised it as a “soft landing” for Asia’s fourth-largest economy.

However, it said strong domestic demand would ensure that the economy maintained a relatively high growth trajectory. In its mid-year outlook for the economy, the global rating agency said interest rates were peaking in the country. Although the Reserve Bank of India (RBI) had taken a number of steps to ease inflationary pressure, S&P felt that the central bank might not change key interest rates in its quarterly announcement due on October 30.

Subir Gokarn, chief economist of S&P Asia-Pacific, said agriculture was expected to grow 3.4 per cent this fiscal on the strength of a good southwest monsoon and reckoned it would be a key contributor to India’s performance this fiscal.

Industry will grow by 9.2 per cent — lower than last year — because of the cumulative impact of rising interest rates and rupee appreciation, he added.

Gokarn said the RBI would not allow the rupee to appreciate beyond the current year and said it would end the year at around 40.50 a dollar.

S&P projected that inflation, based on the wholesale price index, could end the year with an average of 5 per cent. However, it cautioned that this was “understated” because of an incomplete pass-through of international crude oil prices to domestic consumers.

The rating agency noted that the recent appreciation in the value of rupee had offset some of the increase in crude oil prices, but estimated that the complete pass-through would raise the inflation rate by a percentage point.

For the week ended September 22, the inflation rate stood at 3.42 per cent against 3.23 per cent in the previous week. The rating agency said a major positive for India was the steady increase in investment.

While the bottomlines of India Inc hadn’t crimped, the profitability in manufacturing continued to be driven by relatively low increases in wage costs and a marginal increase in productivity.

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