For long now, Indian economic policy planners have earnestly articulated their keenness to see GDP growth vault into double-digit territory.
HONG KONG: For long now, Indian economic policy planners have earnestly articulated their keenness to see GDP growth vault into double-digit territory. Now, at least one economy watcher is betting that that the big moment could be at hand.
“We expect that GDP growth for the fourth quarter of financial year 2006-07, due to be released on May 31, will come in at 10% year-on-year,” says Sailesh Jha, India economist at Credit Suisse.
That estimation is a tad more bullish than the consensus view among economists, which is a 9.5% GDP growth in the fourth quarter, as against the 8.6% growth in the third quarter. Overall GDP growth for 2006-07 will, according to this Credit Suisse projection, be 9.2%.
For the next financial year (2007-08), too, Jha projects GDP growth of 10%, against a consensus estimate of 8% and the RBI’s projection of 8.5%. “In our view, GDP growth may remain stronger for longer compared with the consensus estimate,” says Jha.
The manufacturing and services sectors, he notes, are not showing much signs of slowdown. “The slowing we are observing on the growth front is in consumer durables, property market transactions, cement production, commercial vehicle sales, motorcycle sales and passenger car sales.”
However, Jha adds a caveat. “The risk to our forecast of 10% GDP growth for FY 2007-08 is that we are too aggressive on our forecast that private consumption will grow 7.8%,” he says.
In FY 2006-07, for instance, private consumption grew just 7.3%.
“On the demand side, we expect investment spending and consumer staples to remain robust in FY 2007-08,” says Jha. If there is any downside surprise, it will be in the area of consumer durables spending.
“We remain confident about our fixed-investment growth forecast of 15%, against the consensus estimate of 10.5% and the FY 2006-07 growth figure of 12.5%.”
Jha says he expect the RBI to continue to tighten monetary policy for the rest of this year. “The current pace of GDP growth is unlikely to slow significantly in the next two quarters; inflation is likely to pick up in the July-December 2007 period, and large capital inflows are likely to persist. We expect the RBI to continue to tighten monetary policy.”
Credit Suisse forecasts FY 2007-08 average wholesale price index (WPI) inflation to be 5.5%, against a consensus view of 5.1% and the RBI’s target of 5%. “We expect the repo rate to rise to 8.25-8.5% by end-March 2007 from the current 7.75%. We also expect additional cash reserve ratio (CRR) hikes, and sector-specific policies to be implemented.”
Jha acknowledges that his forecast of Rs 40-40.5 to the dollar by end-March 2008 “may be too conservative.”
Imported commodity inflation may be an important driver of headline WPI in FY 2007-08, and with global food and base metal prices likely to accelerate in the second half of the year and feed through to the WPI, “the exchange rate management policy response of the RBI may be to allow a faster pace of rupee appreciation than we are currently anticipating”.
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