Macquarie sees red at India with below 7% growth

Macquarie has cited "lack of policy reforms" and political compulsions as key reasons for the downgrade of its GDP growth projection for the fiscal FY12-13, beginning April, 2012, to to 6.9%, from 7.9% previously.

However, it has maintained its GDP growth projection for the country in the current fiscal, ending March 2012, at 7.4%.

In a research note, Macquiare has said that its stance on the Indian GDP growth outlook for FY13 has changed from 'mild recovery' to 'continued sluggish' growth, in the context of a weak global economic environment.

"While the global environment is likely to remain uncertain, we believe that domestic factors will dominate the growth outlook," it said.

Even if the private corporate sentiments improve in the second half of FY13, it will be reflected in the financials of the companies only by FY14, as investment projects have a long gestation period, Macquarie added.

Weak investor confidence on governance issues, higher interest rates and higher inflationary pressures, hindrances to project execution, uncertainty about the global economy and weak global capital markets are increasing funding risks, the report said.

Moreover, elections and political issues are likely to further crowd out private corporate capex as the government will largely pursue populist reforms over the next 6–8 months and could delay the tough reforms, it noted.

There are five state elections due in 2012, including Uttar Pradesh, which happens to be one of the most populous states in the country and is regarded as a very important state for the national political scenario. Besides, national parliament elections are also due in 2014.

"There is a slump in overall consumption level, besides, the uncertainty in the global economic environment will likely result in further slowdown in India's export growth over the coming months," the report said.

However, "the pursuance of the government’s loose fiscal policy and rise in rural wages will continue to lend support to overall demand."