press trust of india
MUMBAI, 3 JUNE: Bank of America Merill Lynch (BofA-ML) today lowered India’s GDP growth projection yet again, saying the economy will expand at 5.8 per cent during the current fiscal in view of tight liquidity and slow industrial recovery. The global brokerage has also lowered the growth forecast to 6.8 per cent for the 2014-15 fiscal.
“With tight liquidity delaying lending rate cuts and by extension, industrial recovery, we have marginally pared our growth forecast to 5.8 per cent from six per cent earlier in financial year 2013-14 and 6.8 per cent from 7.2 per cent in financial year 2014-15,” BofA-ML economists said in a note. The note comes within two days of release of official data confirming that the GDP expansion came in at a 10-year low of 5.025 per cent in 2012-13. The brokerage firm had in March revised the growth estimate down to six per cent for 2013-14.
The government’s economic survey expects growth to come in between 6.1 per cent and 6.7 per cent cent for the fiscal, while the Reserve Bank pegged it at 5.7 per cent. BofA-ML expects a “shallow recovery” in growth only in the second half of the current fiscal and added that lending rate cuts hold the key for the revival.
“Given that neither the global business cycle is likely to turn nor capex set to turn around, recovery will pretty much depend on rains and lending rate cuts,” it said.
The report said lending rate cuts have the potential to take the growth to the six per cent level and added that we should monitor the rate cuts for recovery. BofA-ML expects the lending rates to come off by another 0.50-0.75 per cent by next March as deposit grows 15 per cent on the expected CRR cuts and OMOs from the Reserve Bank.