StanChart discounts reforms, lowers GDP forecast to 5.4%

Despite the rash of reform steps announced over the weekend, Standard Chartered India on Monday sharply lowered its GDP growth forecast to 5.4 per cent for FY'13 from 6.2 per cent earlier, citing slowing consumer demand, an anaemic industry and a weak services sector.

The foreign bank also said the latest reform measures will have only long-term impact "We revise down our GDP growth fore cast for FY13 to 5.4 per cent from 6.2 per cent  earlier as investment activity has not picked up in the first half and consumer spending is now slowing," StanChart India economists Samiran Chakraborty and Anubhuti Sahay in a report titled, 'Be patient on growth, despite reform rush'.

Noting industrial growth has stalled, they said "we now expect services sector growth, which has significantly lost momentum, to remain low for a while. Agriculture could also suffer from delayed monsoons."

The revision reflects sharper-than-anticipated slowdowns in main growth drivers, the economists said.

Though the first quarter growth at 5.5 per cent was marginally better-than-expected, "we cannot rule out the possibility of sub-5

per cent prints for the rest of the year.

A low-base should help boost annual growth readings in the second half of this fiscal, but we do not see this as a big driver," they said.

Warning of a sharper slowdown if more corrective steps are not taken at the earliest, they warned "lack of steps to fast-track investment approvals has pushed growth expectations even lower and the market is now prepared for another slowdown of the magnitude seen during the global financial crisis."

Hailing the flurry of reforms as "steps in the right direction", the bank said "the momentum needs to be maintained as they will not have an immediate effect on growth."

Last week Government effected a steep 12 per cent spike in diesel prices and capped subsidised cooking gas apart from allowing FDI in multi-brand retail, aviation, broad-casting and power exchanges.

While the macro backdrop remains challenging, a series of recently announced reforms to contain the fiscal deficit and increase foreign participation in selected sectors has led to renewed optimism, the report said.