HSBC Cuts India FY13 GDP Forecast to 5.7 Percent

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India had its three-year lowest percentage of its economic growth in the quarter that ended in June; however, it was slightly better than the expected 5.5 percent according to the provisional data.

The Reserve Bank of India is expected to leave its key lending rates steady when it reviews its monetary policy, unlike many other G20 central banks that have been easing conditions to support growth. Economists unanimous on India’s fate

This is not the first time, the forecast is being downgraded by various bodies; as earlier this month, Morgan Stanley also had cut India’s economic growth forecast to 5.1 percent citing a combination of weak external demand, low private investment and poor government finances. The U.S. Investment house also reduced its estimate of GDP growth for 2013/14 to 6.1 percent from the previous forecast figure of 6.6 percent. Moreover the economists of Citi, CLSA, and CRISIL have also scaled back India’s GDP forecast in August.

In its report, Morgan Stanley had said that high fiscal deficit, strong wage growth in rural areas and a decline in private investment is leading to "stagflation-type environment.” “In the event of continued inaction from the government, we see very high risk of a potential deeper macro stress scenario," it said, warning that policy sluggishness could push growth further down to 4.3 per cent in the current fiscal year.

India's industrial production grew only slightly in July, with the slow pace of expansion. The data, released by the Central Statistics Office (CSO), proved that the output at factories, mines and utilities grew an annual 0.1 percent, helped by a recovery in consumer non-durables. That was vaguely lower than the Reuters forecast of 0.3 percent growth, but an improvement on an annual contraction of 1.8 percent was logged in June.