Mumbai: The surprise upward revision of December-quarter growth along with the solid result in the March quarter should inject some confidence back into the Indian economy but downside risks remain, Moody’s Economy.com said.
The economy grew 5.8% in the March quarter from a year earlier, above forecasts of 5.2% and matching the upwardly revised December quarter rate, which was the lowest since the December 2004 quarter.
The October-December growth rate was revised from 5.3%.
For the 2008-09 fiscal year to 31 March, India’s economy grew 6.7%, its weakest in six years and sharply slower than rates of 9% or higher in the previous three years.
The rise in expenditure on the election campaign may have boosted India’s March quarter performance but downside effects from the external turmoil have been far too strong to be fully offset by the jump in political spending, the note said.
“The impressive victory of the Congress party foreshadows economic reforms, which may help to strengthen the Indian economy,” said Sherman Chan, economist at Moody’s Economy.com.
The cash-strapped authorities cannot afford sizeable stimulus measures, or they will risk widening the fiscal deficit and policy reforms seem to be the best way of reviving growth while maintaining fiscal discipline, it said.
Moody’s Economy.com said the need for further rate cuts has eased as the economy has held up better-than-expected.
However, the Reserve Bank of India (RBI) is likely to maintain a loosening bias as global economic concerns remain and the US economy is unlikely to bottom out until October, it said.