Wednesday, July 24, 2013

Good news to Indian economy comes only from heaven: Moody\'s Analytics

New Delhi : July 24, 2013(7STARNEWS)Research and analysis wing of Moody\'s group today cautioned against spread of a slow down in the manufacturing sector to services in India. Moody\'s Analytics said the economy grew below potential in the first half of 2013. It saw stalling of reforms even as the government hyped its move of raising FDI caps in certain sectors last week.

Officially, so far the GDP numbers of 2012-13 have come. On calendar year basis, this means that GDP numbers for the first quarter of 2013 has come so far when the economic growth crawled at 4.8%.

In its report Dismal Scientist, the Moody\'s Analytics did not see much signs of recovery for the economic growth in the second half as well. \'The slowdown that began with a downturn in fixed investment and manufacturing production will soon spread to services and the rest of the economy....This will cap Gross Domestic Product growth at 5.5% for 2013 and 6% in 2014.,\' said Glenn Levine, senior economist, Moody\'s Analytics.

India\'s industrial output contracted at an 11-month low of 1.6% in May and grew at a sluggish pace of 1.88% in April this year. Among its components, consumer durables were one the major victims of slow growth. \'Auto sales, a key gauge, have fallen for six straight months, and were down 9% in June, while commercial vehicle sales were off 13.5%. Imports have also stalled, growing just 1.9% in June\', said Levine.

The report mentioned that the government\'s reforms have stalled and that no notable changes are expected before next year\'s general election, which is expected to be in May. The Moody\'s Analytics did not possibility of lifting up the mood of the economy. The RBI is unlikely to cut interest rates again; the government is paralysed by a weak parliamentary position and by the coming 2014 election; local confidence is down; and foreign investor sentiment has turned against India\', said the report.

The report stated that expectations were built up from the economy since reforms were put to place in September,2012. However, since then there has been \'parliament grid locks\' and delayed monsoon session which would be dominated by the \'populist food security bill\' as measures to reform insurance and land acquisition could easily fall by the wayside.

The government had moved an ordinance on food security which entitles 67% of India\'s population to receive subsidised food grains from the government every month.

The report said there is only one upside - the monsoon rains, which is running 25% above the historical averages, providing relief to the farmer. \'It is unfortunate that the only good news comes from the heavens above, rather than from those running the economy here on the ground\', said Levine.

The senior economist was skeptical of a rate cut by the Reserve Bank of India in its upcoming policy review. \'India's large current-account deficit is typically financed by portfolio inflows, fanning currency volatility and weakness when investor sentiment shifts. An interest-rate cut would discourage foreign investors and likely weaken the rupee further\', said Levine. END.
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