Moody's cuts India growth f'cast to 5.5%

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Moody's blames domestic policy 'mis-steps' and poor monsoon. Moody's blames domestic policy 'mis-steps' and poor monsoon.
SummaryMoody's blames domestic policy 'mis-steps' and poor monsoon.

Indian economy is expected to grow at 5.5 per cent this year as "turbulent" global conditions, domestic policy "mis-steps" and poor monsoon are weighing on investor confidence and demand, Moody's Analytics has said.

India's GDP growth rate is likely to be 5.5 per cent this year, while in 2013 growth is expected to be 6 per cent, adjusted from 6.2 per cent earlier, it said.

"There has been little policy response from either the Reserve Bank of India or the government and with global uncertainty dragging on, we see nothing on the horizon to lift the economy from its funk," Moody's Analytics Senior Economist Glenn Levine said.

Moreover the poor June-to-September monsoon, which accounts for around 60 per cent of annual rainfall is the second major factor behind the slowdown in growth forecast.

The monsoon is running 20 per cent below long-term averages, and this might cut agriculture output and rural incomes, with knock-on effects for consumer demand and food prices, which will reaccelerate from early 2013, Moody's said.

The first quarter GDP growth was the slowest in nine years and the second quarter is likely to witness a similar fate as there is no indication of an upturn until at least the December quarter and possibly later, Moody's said.

Confidence among Indian firms has been crushed by weak demand, elevated interest rates, high inflation, and most significantly, the instability created by a weak central government that has badly lost its way.

India's central government is the single biggest factor weighing on business confidence and the economic outlook, Moody's said and added that Prime Minister Manmohan Singh should turn around quickly or risk becoming a "lame duck" for the remainder of his term.

Meanwhile, firms have curbed output and investment amid weak demand and rising uncertainty.

India's industrial production has declined by 1.8 per cent in June mainly due to poor show by manufacturing and capital goods sectors, indicating a persistent slowdown in the economy.

Some other major domestic and international financial services majors like Crisil, Citi and CLSA firms have cut their outlooks for India to 5.4 per cent and 5.5 per cent, respectively for the fiscal year ending in March 2013.

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