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Economy Aug 9, 2012

Moody’s cuts India growth forecast, says govt lost its way

By Firstbiz Staff

In a scathing remark on the goings on in the Indian political economy, Moody's Analytics has said the government has lost its way, and cut slightly the growth projections for the country.

While the growth estimate cut is not significant the language used to explain the rational is, as it sees as it sees "little on the horizon to lift growth".

Ringing another alarm bell for the authorities, the agency has called for immediate action on cutting diesel subsidy.

Moody's Analytics cut India's GDP growth forecast for 2012 and 2013 slightly to just above 5.5 percent. Reuters

"Confidence among Indian firms has been crushed by weak demand, elevated interest rates, high inflation, and most significantly, the instability created by a weak central government that has badly lost its way," it said.

Moody's Analytics cut India's GDP growth forecast for 2012 and 2013 slightly to just above 5.5 percent and 6 percent, respectively, citing a sharper-than-anticipated and broad-based slowdown and poor monsoon.

"There has been little policy response from either the Reserve Bank of India or the government and with global uncertainty dragging on, we see nothing on the horizon to lift the economy from its funk," it has said.

It has said the recent blackout that pushed half of the country's population into darkness is "the most graphic illustration of the infrastructure woes and regulatory
headaches that Indian firms".

Coming down heavily on Prime Minister Manmohan Singh, it has said, "With two years left in office, Prime
Minister Manmohan Singh must turn things around quickly or risk becoming a lame duck for the remainder of his term, leaving behind a legacy of missed opportunity.

The agency is not enthused about the recent pep talk by Finance Minister P Chidambram either. The government's aim is to trim fiscal deficit from 5.8 percent to 5.1 percent of GDP in the 2012-13. "This relies on some overly optimistic growth projections. These targets will be badly missed unless decisive action is taken," it said, adding the simplest and most urgent matter is to curb the government's diesel subsidy programme. The subsidy favours India's middle class, rather than the poor.

"It would help to close the fiscal shortfall and perhaps most importantly, it would send a strong message that the government is willing to reengage in politically unpopular reforms with a longer?term payoff," it said. The Indian economy has continued to slow through the middle of 2012 as turbulent global conditions and domestic policy missteps weigh on confidence and demand. The cycle is proceeding broadly as expected, with GDP growth bottoming around midway through the year.

by Firstbiz Staff

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