HSBC has cut India’s growth forecast for this fiscal to 5.2 per cent from 5.7 per cent, citing insufficient progress on structural reforms and slow implementation of infrastructure investment projects.

It has lowered the country’s growth forecast for this fiscal to 5.2 per cent from 5.7 per cent projected earlier, and for the financial year 2013-14 to 6.2 per cent from 6.9 per cent.

Fiscal, current account deficits

HSBC said the fiscal and current account deficits have turned “uglier”, but the recent reforms push, if sustained, should help lift growth and “beautify” the twin deficits, but it will take some time.

“We think the reforms process will take time and it will likely be another three years before growth returns to 8 per cent on a sustained basis,” Qu Hongbin, MD and Co-head, Asian Economics Research at HSBC, said in a research note.

Growth is expected to recover from 5.2 per cent in the current fiscal to 6.2 per cent in 2013-14 and further to 7.5 per cent in 2014-15.

Sovereign rating

Meanwhile, rating agency Fitch warned this week of a downgrade in India’s sovereign rating in the next 12-24 months citing slowing GDP growth and weak public finances.

In April and June last year, another rating agency S&P, had warned of further downgrades, which would put India into a junk status from the current lowest investment grade rating of BBB—.

Reforms process

HSBC, however, lauded the Government’s reforms push and said: “All in all, policy in India is moving in the right direction and the reforms will likely continue to inch forward, although much still needs to done and some of the bills may not passed in the near term.’’

“However, it is important to be realistic about how long this will take. These types of policies need time to kick in,” the report added.

HSBC said India is likely to see a gradual recovery in growth as reforms process gathers pace and implementation of infrastructure projects pick up, which in turn would help alleviate supply side constraints and slowly revive the investment cycle.

Global economic conditions

Moreover, a gradual stabilisation of global economic conditions during 2013 would also help support the moderate recovery, HSBC said.

In the first half of FY13, the GDP slipped to 5.4 per cent, and the Government expects to close the fiscal year under 5.7 per cent.

Over the medium-term it is crucial for the Government to continue the consolidation efforts at both the central and state government level, to achieve fiscal sustainability, which would eventually help to bring growth back to the levels seen a few years ago.

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