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PYI Quoted Morgan Stanley as Saying That India Is Expected to Register a Gradual Recovery

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Core prompt: PTI quoted Morgan Stanley as saying that India is expected to register a gradual recovery in the economic growth rate to 6.1% in 2013 driven by positiv

PTI quoted Morgan Stanley as saying that India is expected to register a gradual recovery in the economic growth rate to 6.1% in 2013 driven by positive impact from policy actions and acceleration in farm output growth.

The report said that the country's growth rate would witness gradual recovery considering the challenging environment due to high fiscal deficit, high rural wage growth and declining private investments amid a still lacklustre external demand.

The report added that "We, thus, expect only a gradual recovery in growth to 6.1% in 2013 from 5% in 2012, driven by some positive impact from policy actions by the government and acceleration in farm output growth from a low base."

Morgan Stanley said that the bad growth mix of high fiscal deficit, high rural wage growth and declining private investment, needs to be addressed to revive growth in a sustainable manner.

Moreover, managing macro stability indicators such as inflation and the current account deficit will be difficult, unless the government initiates a reduction in its expenditure growth and brings rural wage growth lower.

The report said that "While we are positive that the government will continue with more measures to support improvement in investment, we are less confident that the government will be able to achieve a meaningful reduction in the fiscal deficit via expenditure control and or cut rural wage growth in the year before the general elections."

The government's recent reforms include allowing FDI in multi brand retail, aviation and broadcasting, hiking diesel price, capping the number of subsidized LPG cylinders, opening up pension sector to foreign investment and raising FDI cap in insurance to 49%.

India had been growing around 8% to 9% before the global financial meltdown of 2008. The growth rate in 2011-12 slipped to a 9 year low of 6.5% and in the quarter ended June 30th 2012, the economy grew by 5.5%.

The government expects the economy to expand by 5.5% to 6% this fiscal.

According to Morgan Stanley, policy reforms are the key anchor to correct the bad growth mix. If the government aggressively implements policy reforms and kick starts large Greenfield projects and takes steps towards expenditure control, growth rate could see a significant uptrend.

In a bull case scenario, if the government aggressively implements policy reforms and initiates steps for management of rural wages in line with productivity, we could see GDP growth accelerating to 7.1 per cent in 2013.

It further added that "If the government fails to continue implementing reforms and or reverses some of the reforms announced recently, we could see GDP growth slipping to 5.1% in our bear case scenario."

 
 
 
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