India now a 'gasping elephant'!

Agencies/ Posted: Thursday, May 31, 2012 at 2050 hrs IST
http://www.financialexpress.com/news/india-now-a-gasping-elephant/956270/0

New Delhi: India's economic growth plunging to a nine-year low drew sharp reactions from global financial majors, with HSBC labelling the nation as a "gasping elephant"

while Credit Suisse said latest numbers will send "shivers down" the spines of coalition politicians of ruling UPA.

Putting the onus for the dismal show of the economy on administrative obstacles and policy paralysis, HSBC said while the former have held back key investment projects, the latter has significantly hurt investor sentiments.

"With policy paralysis not likely to ease any time soon, however, India may have to settle for sub-par growth and elevated inflation over the next couple of years," HSBC said in a report.

India's economic growth rate slowed to a nine-year low, in March quarter at 5.3 per cent and 6.5 per cent for 2011-12.

The decline in growth was witnessed in almost all segments of the economy, including agriculture, manufacturing, mining and construction.

At 6.5 per cent, the GDP growth in 2011-12 has been at a lower level than during the crisis period growth of 6.7 per cent, it said.

In a veiled attack, Credit Suisse also criticised the policy paralysis, saying, "It (the fall in GDP growth rate) will inevitably send shivers down the spines of senior coalition politicians, who will no doubt be heaping pressure on the Reserve Bank to react and react aggressively".

Credit Suisse is of the view that the plummeting of GDP growth would put the government in a dilemma on whether or not to raise subsidised fuel prices.

"We had thought it would...but that that has now become a harder call. The move may also be delayed by a month or two," it said, adding that the Reserve Bank, in its policy review on June 18, should focus on growth.

HSBC also said that the weaker than expected GDP growth numbers are likely to increase pressure on the Reserve Bank to cut policy rates further.

"... traction on deep rooted structural reforms is needed to significantly improve the inflation-growth trade-off in the short as well as medium term," HSBC Chief Economist for India & ASEAN Leif Lybecker Eskesen said, adding that the RBI will have to approach any further easing with "caution".