Barclays downgrades India FY13 GDP expectation

Barclays lowered its expectations of India's GDP growth in 2012-13 to 5.8%, down from 6.7% earlier on poor monsoons, policy inaction.

Barclays lowered its expectations of India's gross domestic product growth in 2012-13 to 5.8%, down from 6.7% it had projected earlier. Lower-than-normal monsoons, policy inaction and weak global economic conditions caused the downgrade, the British bank said in a note to clients on Friday, August 17. "India has been in the midst of a slow grind down in its growth momentum for the last year.

In recent months, the pace of the slowdown has accelerated, triggered by a host of supply related shocks and a widespread fall in consumer and business confidence," analysts Siddhartha Sanyal and Rahul Bajoria said in the note. The poor monsoon rainfall was a crucial trigger to the downgrade, they said.

"A poor monsoon is the most critical trigger for this large downward revision to our growth estimate. Our previous GDP estimate (6.7%) was based on expectations of a broadly normal monsoon, as was suggested earlier by the India Meteorological Department (IMD)," they said. As per latest IMD numbers, the monsoon from June 1 to August 15 was about 15% below normal.

However, the deficit was much higher at over 22% around the first week of August. This makes it unlikely for damages to the summer crop, kharif, to be avoided, the Barclays analysts said. Industrial production, which has slumped to near-zero levels, also may not turn around. "Lead indicators are not suggestive of any quick turnaround in industrial growth. Interest rates are high. Availability of credit - particularly for small and medium enterprises (SMEs) - remains a problem," the bank said.

Consumption will "remain key" to Indian economic growth in the ongoing financial year, Barclays said. "Markedly sub-par growth, a softening in core inflationary pressures, near-zero fiscal spending headroom, and likely only hesitant government policy initiatives to revive the economy will underscore the need for greater monetary easing in the coming months, in our view," the bank said, adding that it expects the Reserve Bank of India to cut repo rates by 100 basis points, or 1 percentage point, in the year 2012-13.

Source: http://economictimes.feedsportal.com/fy/8av2Fvy0dAiqD2y3/story01.htm

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