HSBC, Morgan Stanley slash India's GDP growth forecast to 6%

Global financial institutions HSBC and Morgan Stanley today lowered India's GDP growth forecast for the next financial year to 6 per cent from 6.2 per cent earlier due to challenging domestic and external environments and lower-than-expected expansion in the current fiscal.

According to an HSBC report, despite signs of economic growth stabilisation in Asia's third largest economy, the recovery is likely to prove a bit more protracted.

"Overall, the domestic activity readings point to stabilisation in growth, but at a lower level than previously expected. Moreover, the recovery is likely to prove a bit more protracted," the British banking giant said in the report.

"On the back of this, we revise our growth forecast down slightly to 5 per cent in FY13 from earlier estimate of 5.2 per cent and, 6 per cent for FY14 from 6.2 per cent," it said.

Morgan Stanley said India's economy is likely to grow at 6 per cent in FY14 due to factors like lower-than-expected expansion in the current fiscal (at around 5 per cent) along with challenging domestic and external environment.

"We have reduced our GDP forecast for FY14 to 6 per cent from 6.2 per cent (due to) the still-challenging domestic and external environments," the American investment bank's economist, Chetan Ahya, said in a research note.

He, however, noted that some of the other factors that would help in healing the economy include moderation in inflation and further gradual monetary easing and continued policy measures from the government, which should help stabilise private capex as a percentage of GDP.

"Taking into account these factors, we are currently building in a gradual recovery in FY14 to 6 per cent compared to our estimate of 5.1 per cent for FY13. We believe the initial phase of recovery will be driven by an improvement in productivity growth rather than a big rise in investment."

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