* Click on for data from the India poll
* GDP forecast downgraded for fifth straight poll
* Inflation to average 7.0 percent in FY 2012/13
* Repo rate seen at 7.5 pct by December, 7 pct by June 2013
By Sumanta Dey
BANGALORE, April 19 (Reuters) – India’s economy will pick up
this year, although more gradually than previously thought,
while average inflation will be slower, giving the central bank
room to cut rates by another 50 basis points during the fiscal
year ending March 2013, a Reuters poll showed.
The survey showed Asia’s third-largest economy growing at an
annual 6 .5 p ercent in the three months to June, and accelerating
to 7 pe rcent in the next quarter. That is down from 6.8 percent
and 7.1 per cent in the January poll.
Growth is expected to clock a 7.1 percent rate for the
fiscal year 2012-13. The International Monetary Fund is a little
more optimistic, at 7. 3 pe rcent. Growth for the latest fiscal
year ended in March is expected to be 6.8 percent.
Yet even so, growth estimates have now been cut for the
fifth straight quarterly Reuters poll. The current rate, at 6.1
percent, is far below the near double-digit rates before the
onset of the global financial crisis in 2008-09.
“One of the biggest challenges the economy has faced last
year has been the policy inertia and that continues to remain,”
said Upasana Bharadwaj at ING Vysya Bank.
But she said the surprisingly sharp 50 basis point cut from
the Reserve Bank of India this week “should provide some boost
to overall sentiment and help in stimulating investment.”
That was the RBI’s first rate cut in three years, following
a lengthy battle to bring down inflation.
MORE RATE CUTS?
Indeed, the central bank was still raising interest rates
long after many others started cutting them, severely crimping
growth and punishing the rupee.
Other central banks like the U.S. Federal Reserve and the
Bank of England, with interest rates at the zero barrier, have
resorted to printing money to shore up their economies, with
limited results thus far.
With the repo rate at 8 percent, the RBI still has room to
cut. Even after the RBI’s 50 basis point cut this week,
economists now expect it to be lowered to 7 pe rcent by June next
year instead of 7.5 per cent in the January survey.
Once considered the engine of Asian economic growth, the
Indian economy in recent years has been throttled by a
combination of high inflation, tight monetary policy, weak
global economic conditions and lax implementation of fiscal
policies and reforms.
The Chinese economy, on the other hand, is expected to grow
by 8.4 percent in 2012 and 8.6 percent next year.
While the RBI tries to restart the investment cycle, much of
the work to promote India’s global investment appeal is the
government’s responsibility.
The government is caught in a cross wind. On the one hand,
it must reduce the fiscal deficit in order to make India
attractive to foreign investors. But by raising taxes to do so,
it would directly affect sentiment and hamper growth.
“The deviation of growth from its trend is modest,” RBI
Governor Duvvuri Subbarao said on Wednesday, referring to the
6.1 percent growth in the quarter to December, its weakest
annual pace in almost three years.
While markets cheered the rate cut, further monetary policy
loosening will clearly depend on how fast inflation cools.
The poll showed India’s wholesale price index will edge
lower from the current 6 .9 p ercent to average 6 .6 p ercent in the
three months to December, an d 7.0 pe rcent in the March quarter
next year largely on account of rising food and fuel prices.
“At the same time, upside risks to inflation persist. These
considerations inherently limit the space for further reduction
in policy rates,” Subbarao added.
(Additional reporting by Yati Himatsingka; polling by Deepti
Govind; Editing by Ramya Venugopal)
