Independent economists suggest slowdown in India may have bottomed out; HDFC Bank ups forecast

NEW DELHI: Forecasts by independent economists suggest that the slowdown in India’s growth may have bottomed out. HDFC Bank has upped its forecast for the next fiscal year while Yes Bank and Bank of Baroda are expected to do so soon, indicating that though there may not be any visible improvement, the outlook for next few quarters has improved.

The government initiated reform measures last month to shore up finances and boost growth. The move improved sentiment and perked up the markets. HDFC Bank has revised its forecast for 2013-14 to 7-7.5% from 6.5% estimated earlier, even as the International Monetary Fund (IMF) lowered its forecast for the 2013 calendar year to 6%, from 6.5% earlier.

“While the big bang reforms have no doubt lifted sentiments, it will take some time for this to translate into action on the ground and for new investments to actually kick in… we are retaining our FY13 forecast at 5.5%-5.7%, but now see FY14 growth at 7%-7.5%, against 6.5% previously,” the bank said in its September note.

The revisions are largely based on expectations of greater overseas capital inflow, reined in fiscal deficit and buoyed market sentiments after the government opened up the insurance, retail and aviation sectors for foreign direct investment and took the politically-sensitive decision of raising diesel prices.

“These measures are hugely welcome and will benefit the economy in the medium term. Although we expect inflation to be sticky, we are looking at improved overall scenario and will be revising our estimate for the next fiscal to 6.5%-7%, up from the 5.5% estimated earlier,” said Subhada Rao, chief economist at YES bank. YES Bank has kept its FY13 GDP forecast unchanged at 5.7%.

According to official data, the economy expanded only 5.5% in the first quarter of the current year, marginally up from the nine-year low of 5.3% in the previous quarter, triggering a wave of forecast downgrades that put the entire year’s growth at about 5.5%.

In a recent survey conducted by Bank of Baroda, 48% of the respondents said the reform steps announced by the government recently had had a positive impact on sentiment. The bank is confident of a decent increase in credit demand in the next half year coupled with some reduction in lending rates.