Agencies
Mumbai, Mar 31:
Morgan Stanley said on Monday that it had cut its forecast for India`s economic growth to 7.1% for the fiscal year starting in April, after the government said last week it was prepared to give up growth to fight inflation. This would be the slowest economic expansion in Asia`s third-largest economy in six years, after a sizzling 9.6% rise in 2006-07 and a central bank estimate of 8.5% in 2007-08.
Annual inflation in India struck 6.68% in mid-March, the highest since a two-year peak of 6.69% in January last year, mainly due to a jump in world prices of food, oil and metals.
"This has increased the risk that policymakers will initiate fresh measures which will further compress the growth trend," Chetan Ahya and Tanvee Gupta, economists at the US investment bank, wrote in a note.
Morgan Stanley, which had earlier projected India`s growth at 7.4% in 2008-09, said it had also lowered its forecast for 2009-10 to 7.6% from 7.8%.
The reductions follow cuts by other research houses, including JPMorgan and HSBC.
"Increased risk aversion in the global financial markets and delay in the much-needed policy rate cuts due to inflation`s rise, will affect India`s growth outlook," Morgan Stanley said.
"We believe that, in addition to weak consumption and export growth, now business investment will also start slowing over the next six months," it said. Export growth in rupee terms has slowed to an average 7.9% over the past six months from 23.3% in the 12 months ended March 2007, it said.
Industrial production grew 5.3% in January, sharply slower than an average of 8.3% in the December quarter and a peak of 15.8% in November 2006, it said.
"In our view, weaker sales growth when capital charge for new capacity is increasing will hurt corporate profitability and sentiment," it said.
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