Mumbai: Morgan Stanley has revised its growth estimate for FY10 to 5.8% from 4.4% previously, assuming higher private consumption and infrastructure spending, it said in a research note on Monday.
Prime Minister Manmohan Singh’s ruling coalition won an overwhelming election victory on Saturday, boosting hopes of a stable government as the emerging Asian power faces an economic downturn and tensions with Pakistan.
“We believe this strong political mandate will allow the new government to accelerate the pace of reforms,” Chetan Ahya and Tanvee Gupta, economists at Morgan Stanley, wrote.
They also revised their 2010/11 growth forecast to 6.8% from 6.2%, and highlighted the global risk appetite and external demand were a risk to their growth estimates for both the current and next financial year.
The key areas the new government is expected to focus on are improving public finances, acceleration in infrastructure spending and augmentation of government resources through privatization, Ahya and Gupta said.
“We believe that the new government will ensure that the public finances start correcting over the next 12-18 months reducing the risk of crowding out private investments”.
“We believe the new government will have little incentive to take the risk of widening fiscal deficit and face a rating downgrade,” they added.
The research firm also expects the government to take measures to improve stable capital inflows and implement deregulation measures for pension funds and in banking and retail sectors.