StanChart ups India's FY11 GDP growth to 8.1%

In view of India's faster industrial growth and improved business confidence, UK-based Standard Chartered Bank (SCB) today revised upwards its forecast for the country's economic growth to 8.1 per cent for the current fiscal.

Earlier, SCB had estimated the country's GDP growth for 2010-11 at 7.5 per cent. However, for the previous fiscal ended March 31, 2010, the bank has maintained its forecast at 7 per cent. India clocked 15.1 per cent increase in factory output in February, recording double-digit industrial growth for three consecutive months.

"As a result of much faster industrial growth, stronger credit take-up and a rebound in business sentiment we now expect FY11 GDP growth to average 8.1 per cent (our initial expectation was 7.5 per cent with upward bias)," SCB said in a statement.

It added, "Overall consumer demand, which accounts for 56 per cent of total GDP, remains robust." SCB said companies have started hiring again, both in services as well as labour intensive sectors. Besides, salary hikes have resumed, with 10-13 per cent increase expected in FY11.

It said, however, that the contribution of household consumption to overall GDP is usually in a tight range of 2-5 per cent, "hence any upside gains from further improvements in consumption are likely to be limited".

SCB also cautioned that for India to return to the economic growth of boom-year levels, there will have to be a significant improvement in investment demand.

"Despite the year-to-date rebound in business optimism backed by better order books, more easily available financing and capacity constraints, capex is not expected to be as strong as in boom years, as the global recovery, especially in the developed economies, will be sluggish," it added.

India had clocked an impressive 9 per cent growth for three fiscals in a row till 2007-08, before being hit by the global economic meltdown. Its GDP grew by a relatively modest 6.7 per cent in 2008-09.

SCB said it expected investment demand to grow at 11 per cent in FY11 against an average of 12 per cent in the years preceding the crisis. That apart, the bank said the pressure on growth could come from rising commodity prices, leading to an increase in production costs and high interest rates.