Poor growth phase ahead?

Poor growth phase ahead?

Growth in India had remained relatively strong until the quarter ending March 2011, but clear signs of slowdown have emerged over the last three to four months. Car sales, two-wheeler sales, modern format retail sales, investment and construction spending appear to be moderating.

Also See | Poor Growth Phase Ahead (PDF)

We believe a combination of factors—including persistently high inflation, higher cost of capital, cut in the ratio of fiscal spending to GDP, weak global capital markets environment and slow pace of investment—will cause a further slowdown in growth.

We expect both investment and private consumption growth to be lower than expected earlier. We are cutting GDP growth estimates: on a calendar-year basis, our new growth estimates are 7.3% and 7.8%, down from old forecasts of 7.7% and 8.5% for 2011 and 2012, respectively.

What is the way out of the slowdown? We believe the government needs to adopt a two-pronged strategy.

One, to appoint a powerful group of ministers led by the prime minister to fast track 25-30 core projects, giving them full support on execution in order to kick-start an investment cycle.

Two, to accelerate the pace of policy reforms which have already been in the pipeline for some time.

Graphic by Yogesh Kumar/Mint