Despite agreeing to the fact that India was not affected by the US subprime crisis, the global rating agency, Standard & Poor?s (S&P) has warned that tightening of the monetary policy may moderate the India?s economic growth rate which was hovering between 8.5% and 9% during the current year. The agency has said that any further tightening measures taken by the Reserve Bank of India (RBI) may moderate the growth between 8.1% and 8.6%. With domestic forces driving demand, India is relatively immune to US credit woes.
However, India continues to see a very rapid growth in energy consumption and hence domestic growth drivers may be hindered by oil prices remaining at these levels for any sustained period of time and this may impact the ability of the Indian economy to grow under its own steam, the report says.
Addressing the media after releasing ?2008 Asia-pacific Markets Outlook? in Mumbai on Wednesday, Dr Subir Gokarn, chief economist, S&P, Asia-Pacific, said, ?The moderation to 8.1%-8.6% this year reflects a soft landing, taking the Indian economy closer to its current trend growth rate, estimated at 8.5%.?
Later, talking to FE on the sidelines of the event, Gokarn said, ?We have very low inflation. Even if we make oil price correction, possibly early next year, inflation level will not go beyond 4.5%.?
On interest rate, Gokarn said that if the growth rate remains at 8.5% , then I don?t see any sign of interest rate-cut in the country. Still he maintained that further CRR hike may happen when the RBI reviews its annual monetary policy for the third quarter in January.
Also, he hinted for the integration of regional markets in Asia next year. Gokarn maintained that as the global oil price hike has not been passed on to the Indian consumers, inflation is understated. Though food prices are favourable, thanks to the widespread good monsoon in the country, uncertainty continues to haunt the forthcoming wheat production, which may get a setback due to presence of moisture in the fields, said Gokarn.
Asked to comment on the RBI?s change of stance by shifting its focus from inflation targeting to price stability, Gokarn said, ?I don?t think too much distinction should be made between the two things?. Though agreeing to the fact that there was a remarkable slowdown in the FII inflows due to the curbs put by Sebi on participatory notes (PNs), Gokarn said that that there was temporary disruption thanks to the confusion created over the issue. Still, he stressed that he does not see any permanent impact due to measures undertaken by Sebi.
On ECB curbs put by the RBI in its bid to moderate capital inflows, Gokarn said that marginally it can help achieve the goal of checking rupee appreciation, but the pressure was too strong and hence there was no reason of further strengthening of rupee.
Commenting on the performance of the banking sector, Anshukant Taneja, senior director, corporate and infrastructure rating, Asia ex-Greater China, S&P, said that banks? outlook is positive in 2008 but the outlook was negative for corporate houses in the country. Currently, Indian corporates were riding on the growth of 18% in their toplines, but it may moderate to 10-15% next year, he said. On the insurance sector, Taneja said that the outlook was from stable to positive. Intense competition was taking place post de-tariffing and the insurers were faced with big challenges, he said.