S&P Lowers India Growth Forecasts To 5.5% For FY13

The announcements of recent reform measures has not change the view of the global rating agency Standard & Poor’s who seemed unconvinced from the government’s recent effort and has cut India’s growth forecast to 5.5 per cent for this fiscal from 6.5 per cent projected earlier.  Moreover it has warned to cut the growth forecast in the worst case scenario to 5% if more concrete measures are not taken in the near term to fix the problems that are impacting the economic growth. The major reason for the cut has been cited is the Lower monsoons that have affected India’s growth prospects as agriculture constitutes a major part of the Indian economy. The other major reasons for the rate cut has been cited are, uncertain global environment, slowing down of the Chinese economy, ongoing troubles in the European countries and struggling US recovery.

The rating agency also blamed the government for its key policy decision in the past and infrastructure short comings for the slowdown in the economy. The latter was recently highlighted by the power outage in early August that affected 20 of India's 28 states. The rating agency has further stated that economic growth situation would remain sluggish in the second half of the year as well.  

The rating agency has earlier cut its outlook on India’s sovereign rating from stable BBB- to negative in April and had warned that India may become the first BRIC country to lose its sovereign rating status if it does not follow reforms immediately and effectively. After which Indian government slammed the rating agencies by announcing measures such as to allow freer foreign investment in retail, aviation and broadcasting, the government also raised the price of diesel by Rs.5 a litre and capped subsidized cooking gas to six cylinders per household in a year.

However despite these efforts to bring the economy on its growth track, the rating agency seems to be cautious and had now questioned the fate of FDI in multi-brand retail business when the Central government has left its acceptance to the discretion of individual states and has stated the reforms’ success depends on implementation and States may reject FDI in multi-brand retail trade.

With India's GDP the rating agency has also lowered China’s GDP growth projection to 7.5% from 8% projected earlier. It also lowered growth projections for Japan, Taiwan, Singapore and Korea  marginally by half a percentage point each to 2%, 1.9% 2.1% and 2.5% respectively.

Though the measures that have been announced are very encouraging it now all depends on the implementation of the same in the coming months. These measures will not prove beneficiary immediately it will take at least 8-10 months to contribute to the GDP of the country.