Barclays Cap sees India's GDP at 7% in FY10

Financial services provider Barclays today revised India's growth projection for 2009-10 to 7 per cent from the earlier forecast of 5.5 per cent on the prospects of a stable government.

With the return of the UPA government to power, a stable government at the Centre is expected to trigger demand and this too would contribute to higher growth, Barclays Capital Senior Regional Economist Sailesh K Jha said.

"In our view, this (poll outcome) improves the short and medium term outlook for GDP growth...The risks to our FY09-10 and FY10-11 GDP growth forecasts of 5.5 per cent and 6 per cent could be tilted to the upside by around 150 basis points," Jha said.

The Reserve Bank, which had used its policy tools to support a sagging economy since October last year, is likely to shift its focus to inflation by late third quarter of this year, he said. Jha also expects the rupee to appreciate to 45 against the US dollar by December 2009 as the Reserve Bank's exchange rate policy will 'tolerate' a significant appreciation in the currency value.

Also, a positive GDP outlook, an expected surplus in the country's balance of payments in the second half of this year amongst other global factors are likely to contribute to a sharp appreciation in home currency, he said. 

The new UPA government, which is less dependent on allies, is expected to attract large foreign investments in the country, which may result in a surplus in capital account in the latter half 2009, Jha said.