A long road to recovery for the economy

The Indian economy’s comeback would not be V or U-shaped. It will take far more time, seems to be the refrain..

“While GDP growth bottomed out in quarter-ended December and will gradually pick up from here, we now expect the recovery to be stretched out marginally compared with our earlier expectations,” said Morgan Stanley economists Chetan Ahya and Upasana Chachra in a note on Wednesday.

India posted a GDP growth of only 4.5% for the quarter ended December, hurt by slowdown in agriculture, mining and manufacturing.

The duo snipped their GDP growth forecast for 2014 fiscal to 6% from 6.2%, citing ‘still-challenging’ domestic and external environments, and said the economy was healing but at a gradual pace.

HSBC, too, snipped it exactly the same way, saying recovery was proving to be
protracted.

The bank also lowered growth expectation for financial year 2015 to 7.2% from 7.4%.

“External and domestic economic conditions have been on the mend, and core inflation has eased,” said Leif Eskesen, HSBC chief economist for India and Asean. “However, the recovery is proving slower-than-expected, leading us to slightly lower our fiscal year 2013-15 growth forecasts.”

Saugata Bhattacharya, chief economist at Axis Bank, said the economy has slowed down a bit more rapidly than they had initially expected due to various reasons including the borrowing cost not coming down, continuing problems with policy and its implementation.

Morgan Stanley economists said that while fiscal consolidation by India was a positive for the economy as it improves macro stability risks such as consumer price inflation and current account deficit, it will affect consumption growth and hence act as a drag on GDP growth.

Axis’ Bhattacharya, however, said India should start seeing a pick-up soon but a significant improvement will probably have to wait till the second half of financial year 2014.

Morgan Stanley economists believe an improvement in agriculture GDP growth, a slight pick-up in export growth, and stabilisation of private capital expenditure at low levels will help improve overall GDP growth in fiscal year 2014.

@MeghaMandavia