DBS revises down GDP forecast to 5.6% in FY15

There has been slower progress in terms of investments and manufacturing in first half of current financial year

Singaporean lender DBS has revised down its FY15 GDP growth forecast for India on slower investment and manufacturing, but said the country is entering a 'sweet spot' over the next two or three years to lift the potential growth rate back to 7%.

According to the global financial services major, while the recovery process is proceeding, there has been slower progress in terms of investments and manufacturing in the first half of the current financial year.

Slower investment and manufacturing is expected to impact second half performance as well, which "accompanied by lower government spending and weaker net exports, put our FY15 and FY16 forecast at risk," DBS said in a research note.

The GDP growth in the second quarter of this fiscal slowed marginally to 5.3%, lower than the 5.7% target in first quarter.

"With first half GDP growth slower than our base case and dampening forces in the second half, we temper our FY15 GDP estimate to 5.6% from 6.1% previously," DBS said in a research note, adding that for FY16, there is likely to be a slight acceleration to 6.1%.

The decline in second quarter GDP is mainly on account of subdued performance of agriculture sector as its growth rate slipped to 3.2% in second quarter from 5% in the corresponding period last fiscal.

Similarly, manufacturing sector growth rate declined to 0.1% during July-September quarter from 1.3% a year ago.

DBS has revised FY16 GDP forecast to 6.1% from 6.5% previously.

The report, however, said that "nonetheless, the economy is in the cusp of a cyclical recovery, with a structural boost over the next two or three years to lift potential growth back to 7%."

On inflation, the report said it will ease towards 6% in FY16, closer to the RBI target. October CPI inflation slowed to 5.5% on a year-on-year basis and is likely to slip below 5% in November.

"Passage of base effects thereafter will lift inflation back towards 6% after December before settling within 5.5% to 6.5% into next year," the report added.