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Indian GDP to grow faster in 2012, worst over: Fitch

Global rating agency Fitch has forecast that real GDP in India could grow around 7.5% in the new financial year, up from an estimate of 7.0% in FY2011-12.

“India appears to be reaching the bottom of the current economic cycle. Real GDP grew just 6.1% yoy in Q411, down from 6.9% yoy in Q311… Industrial production unexpectedly increased 6.8% yoy in January compared with a 2.5% yoy rise in December… Manufacturing PMI remains elevated, reaching 56.6 in February, slightly below 57.5 in January,” it said in a global report on economic growth.

It pointed out that a breakdown by expenditure showed domestic demand stabilizing. Private consumption rebounded, rising 6.2% yoy in Q411, compared to a 2.9% yoy increase in Q311,” Fitch pointed out.

Fixed investment fell 1.2% yoy in Q411, following a 4.0% yoy decline in Q311, it pointed out, showing that there is only one way to go for things.

It also painted an optimistic picture on the relentless price inflation that has hampered both industry and government. India’s wholesale price inflation has been in the 7-9 percent range for almost the last two years — up from a long time average of 5 percent.

“The slowdown in economic activity is taming inflationary pressures. The headline wholesale price index (WPI) rose 7.0% yoy in February, compared to a 6.6% yoy rise in January.

“February’s rise in headline WPI wa s largely a result of unseasonal rain patterns, which led to a surge in food prices, otherwise core inflation pressures are easing,” Fitch said.

“Barring any unforeseen shock to oil prices, it seems reasonable to believe that India is unlikely to face a sharp reacceleration in inflation this year,” it said.

The new combined consumer price index (CPI), which will eventually become India’s key inflation gauge, shows inflation stood at 7.7% yoy in January.

The Reserve Bank of India (RBI) has already begun to loosen monetary policy. It cut the cash reserve ratio by 75bps to 4.75% in early March, which follows the 50bps cut in late January.

“The RBI should also be able to cut its key reverse repurchase rate, which currently stands at 7.25%, and bring it down by 100bp over the course of FY2012-13,” Fitch said.

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