HSBC's Eskesen pegs India's GDP growth for FY12 at 7.4%

The finance ministry has ultimately realised that economic growth will slow down to 8-8.2 per cent this financial year compared to 8.6 per cent last financial year, but this assessment also seemed to be too ambitious if projections of those outside government are considered.

Leif Eskesen, chief economist (Asean and India) at HSBC, which sponsors widely-tracked purchasing managers’ index (PMI), pegged economic growth of India as low as 7.4 per cent this financial year.

After the Economic Survey projected Indian economy to grow anywhere between 8.75 per cent and 9.25 per cent during 2011-12, the background note of the finance ministry pegged it at 8.6 per cent. However, a month after the note, official data showed that GDP growth slowed down to 7.7 per cent in the first quarter of this financial year, lowest in 18 months.

 

Finance Minister Pranab Mukherjee had lowered this optimistic projection now. “I am expecting it will be 8-8.2 per cent at the end of the year, as normally the growth in the last two quarters is little higher than the first two. So, the last two quarters must record growth in excess of 8 per cent, otherwise the average will not come,” he had told reporters on the sidelines of the G-20 meeting in Paris.

Earlier this month, PMI showed that private sector manufacturing growth had come close to contraction point in September by standing at 50.4 points. PMI for services, in fact, showed contraction in the private sector tertiary growth below 50 points, for the first time after the April one, 2009 which was a period of global financial crisis.

However, PMI numbers are month-to-month numbers and are based on a survey of some 500 private sector companies, while official GDP numbers are year-on-year estimates.

Eskesen told Business Standard that the PMI numbers clearly show that growth in India is moderating in response to the monetary tightening undertaken so far, the uncertainty associated with the elevated level of inflation, and also the “natural speed” limit imposed by the tight capacity constraints.

“Moreover, we have more recently seen some spillovers from the weak global economy through a decline in export orders,” he added.

The economist, however, clarified that the PMI numbers point to a moderation and not a collapse in growth.

“We are, consequently, projecting a soft landing for the Indian economy, with growth coming in at 7.4 per cent in 2011-12,” he said.

Eskesen also pegged GDP growth to be rising slightly to 8.1 per cent in 2012-13.

Meanwhile, India’s exports continued to shine amid slow down in other sectors. Exports grew by over 52 per cent at $160 billion in the first half of the 2011-12. However, the pace of growth has decelerated in September compared to earlier months of this fiscal.

Eskesen said, “We are starting to see some effects here. For example, the HSBC sub-reading for export orders for the manufacturing sector has showed a contraction over the past few months. We, therefore, expect to see a continued moderation in export growth in coming months.”

He said, while this will have some impact on overall growth, it’s important to bear in mind that India is still a predominantly domestically oriented economy and, as such, is much less vulnerable to adverse global economic spillovers than many of its “high beta” Asian peers.

However, domestic parameters are also not showing any robust performance.

Industrial production expanded at sub-5 per cent for the second month in a row in August, with mining output contracting for second time this financial year dragged down by problems in the coal sector.

Earlier, this week Crisil Research had lowered India’s GDP growth projection to 7.6 per cent this financial year from its earlier estimate of 7.7-8 per cent.

Industry chamber Ficci had pegged it at 7.5-8 per cent, but expected the growth to be in the lower band of the range. Earlier, Ficci survey with independent economists had pegged economic growth at 7.9 per cent earlier.

Prime Minister’s Economic Advisory Council (PMEAC) had also lowered its projections for economic growth to 8.2 per cent from earlier 9 per cent. But, now PMEAC Chairman C Rangarajan expects the growth to be close to 8 per cent.

Ficci said even 8 per cent growth will require the economy to grow by 8.1 per cent in the remaining months of the current 2011-12, which seems to be unlikely scenario.

Earlier this month, Fitch Ratings had also cut India's economic growth projections to 7.5 per cent for this fiscal from 7.7 per cent earlier.

The Reserve Bank had raised policy rates 12 times since March 2010 to tame inflation. But inflation could not be brought down below nine per cent till September in this calendar year. However, the consequent rising interest rates have dampened economic growth.

In the backdrop of this scenario, Prime Minister Manmohan Singh had yesterday held consultations with RBI Governor D Subbarao, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Rangarajan. RBI is slated to come out with its monetary review on October 25.