Mumbai:In a bullish bet on India,Credit Suisse Group predicts that the Indian economy will grow at 10% in fiscal year, 2007-08, well above current consensus that the country’s gross domestic product (GDP) will grow at about 7.8%. For the fiscal year, 2008-09, its GDP growth forecast is 10.5%.
In its latest emerging markets economics research, the Zurich-based financial services firm also expects inflation to cool to 4-4.5% starting March.
Despite worries of the Indian economy overheating—the report suggests that the monetary pressures on inflation are concentrated in the property and financial assets sectors. The bias of the central bank, suggests Credit Suisse, is to slow credit growth in the commercial property sector and exposure to capital markets. The report notes that despite the actions of the central bank, there is adequate spending cash for sectors such as power, cement, capital goods, and construction equipment and services sectors.
The report however mentions that infrastructure could be a bottleneck to the growth rate. Foreign institutional investors (FII) must play a larger role in investing in local currency bonds that can be used as an additional source of financing infrastructure projects. Financing could also be through pension fund investment in local currency bonds issued for such projects.
Credit Suisse further predicts that the $18 billion (Rs79,200 crore) cap on external commercial borrowings may be raised. It also says that long-term overseas debt of seven to 10 years may be exempt from the overall limit on external commercial borrowings. It expects an announcement to this effect in the forthcoming Union budget. The report also expects announcements relating to further rising of caps for FII investments in the local currency government bonds and corporate bonds. At the moment, there is a limit of FII investment in rupee donominated bonds.
The downside risk, according to Credit Suisse, may emerge if environmental and water clearances are delayed, tender of the projects is delayed due to bureaucratic bottlenecks, and land acquisition by state governments is slower than anticipated. In the highways sector, investment spending could be slower due to frequent changing of designs, slow payment by the government, and slow land acquisition by the states.