HSBC, Morgan Stanley cut India's FY14 GDP forecasts to 6% from 6.2%

Morgan Stanley and HSBC each cut their India's economic growth forecasts for 2013/14 to 6.0 per cent from 6.2 per cent to reflect lower-than-expected growth in the October-December quarter.

HSBC said that it expects 50 basis points of additional rate cuts in the calendar year 2013, and "a slightly more protracted recovery" in India. Morgan Stanley said domestic and external environment still remain "challenging," but also noted that an improving growth in the agriculture sector, a slight pick-up in export growth and more stable private capex could help improve economic growth.

On Wednesday, C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, and a former governor of Reserve Bank of India declared that Indian economy faces stagflation, a state of high inflation, and poor growth rate.

“It is pertinent to note that stagflationary tendencies have already reared their head in emerging markets, like India, where financial intermediation was never a problem,” Rangarajan says in a paper titled `Growth or Austerity: The Policy Dilemma’ co-authored with Alok Sheel. The assessment brings to fore the monetary policy challenges for RBI, which is facing demands for lower interest rates despite strong inflationary expectations.

The Wholesale Price Index was at 6.62% for January, but inflation as measured by consumer prices rose 10.91% in February. The Index of Industrial Production in January climbed 2.4%, but the capital goods production, sign of investments, contracted.