S&P's increases growth forecast to 6.3%

S&P's increases growth forecast to 6.3%
Business Standard, August 14, 2009, Page 5

BS Reporter / New Delhi

Rating agency Standard and Poor’s (S&P’s) today raised its India’s growth rate forecast by 30 basis points to 6.3 per cent for the current fiscal on the back of improving global and domestic economic scenario.

Strong domestic demand, which has stood the shocks of economic downturn, has also contributed to S&P’s upward revision of India’s GDP.

The revised figure, however, does not take into account the weak monsoon, which is expected to adversely affect the agricultural growth. Finance Minister Pranab Mukherjee had earlier this week expressed confidence that the country would be able to record more than 6 per cent growth despite drought.

“Though it is premature to gauge the impact of monsoon, I don’t think it will have an adverse effect on the level (of growth) that people are anticipating,” said S&P’s Chief Economist Subir Gokarn at a teleconference. “The reason is that most of the areas that have suffered deficient rains have irrigation possibilities and so the monsoons may not affect overall economic growth,” he added.

Gokarn also said the spread of swine flu might affect some sectors, but its effect on overall economic growth would be limited.

On the policy front, he expected that a neutral monetary policy and softer interest rate scenario would stay for another 2 to 5 months, as inflationary pressures might rise and require policy unwinding.

“Though the inflation situation is benign at present and is expected to be so for some more time, rising oil and commodity prices, along with the excess liquidity pumped into the system, may lead to inflationary pressures and risk economic recovery,” he added.

Moreover, he said the steep growth of 7.8 per cent in the industrial output in June signalled that credit offtake might rise at a much faster rate than thought and surplus liquidity might be absorbed at a much faster pace.

“However, I expect the recovery to be modest, as capital inflows have stabilised to keep liquidity at comfortable levels at present,” he added.