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Expert views - Economy grows 5.5 pct in April-June qtr

Source : REUTERS
Last Updated: Fri, Aug 31, 2012 06:28 hrs
A man works at an iron scrap yard at an industrial area in the southern Indian city of Chennai

India's economy grew at a higher-than-expected 5.5 percent in the quarter ending in June, against analysts' forecasts of 5.3 percent, government data showed on Friday.

The manufacturing sector grew an annual 0.2 percent during the quarter, while farm output rose 2.9 percent, the data showed. In the quarter ending in March economic growth was at 5.3 percent.

COMMENTARY

LEIF ESKESEN, CHIEF ECONOMIST FOR INDIA AND ASEAN, HSBC, SINGAPORE

"Going forward, we expect a gradual recovery in growth during the current fiscal year ending in March 2013, but this recovery is contingent on structural reforms that will alleviate supply side constraints and improve the investment cycle. It will also depend on the stabilisation of the global economy."

"We expect full-year growth at 6.2 percent. We believe today's data will add to the Reserve Bank of India's reluctance to cut interest rate."

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

"We don't think that today's growth number will lead to any change in the Reserve Bank of India's monetary policy stance. It is unlikely that there will be a rate cut before the fourth quarter of the current fiscal year ending in March 2013.

"Our growth estimate for the current fiscal year is 5.8 percent. We are seeing that slowdown in the manufacturing sector is percolating to the services sector. However, in the third and fourth quarter of the fiscal, there may be some improvement in industrial activity."

SHAKTI SATAPATHY, FIXED INCOME ANALYST, AK CAPITAL, MUMBAI

"The number is primarily a reflection of upside growth captured in construction & financing, insurance, real estate & business services. However, a sustainable growth in the coming quarters would largely depend up on well defined policy reforms.

"With higher than expected number, the RBI might stick to its inflation reining principle. With most of the negativities discounted by the bond market, the northward pressure in the Indian bond yields seems restricted with 10-year benchmark to hover around 8.20 percent - 8.25 percent up till next policy meet."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"Even if the GDP growth number is at 5.5 percent - much above the market expectations, there is no doubt that the country has fallen into a low growth trap due to a continuing fall in fresh investments. The combination of high growth in construction activity and low growth in manufacturing is worrisome from the perspective of macro-economic stability."

"This number should not have any major implications for the RBI policy, their stance will remain the same".

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI

"The industry numbers look much more higher than the IIP (index of industrial production) numbers, especially because these numbers track each other closely. But on balance this is a better number. I would think RBI would be reasonably happy with this number as it doesn't look as bad as they would have feared in July and most likely will keep rates unchanged next month."

RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE

"Sense of relief was palpable in the domestic financial markets after the stronger-than-expected Q2 GDP print. Whilst an upside surprise at 5.5 percent, the pace of growth is undeniably below potential and validates the need for the government to address sluggishness in investment and external sector activity.

"Inflation remains sticky for the same reason that GDP is underweather - supply side constraints and structural bottlenecks. Thereby RBI action, we reckon, will be dictated by when the government gets its act together on the fiscal situation and ease structural constraints. We nonetheless still see reason to hold on to 50 bps rate cut by year-end, albeit might be deferred to Q1 2013."

NITESH RANJAN, ECONOMIST, UNION BANK OF INDIA, MUMBAI

"GDP growth is a bit higher than our estimate of 5.4 percent, but there are no broad surprises except construction growth being in double digit and higher growth in agriculture The flat growth of manufacturing sector is presently the main worry; no doubt weakness in services is also getting extended.

"Do not think that (fiscal) first-quarter GDP data will have any bearing on RBI's monetary policy stance for mid-quarter review. However, in our view, extent of dip in growth indicators is more likely to trigger a rate cut in future rather than inflation since price pressures do not seem to ease soon."

JONATHAN CAVENAGH, CURRENCY STRATEGIST, WESTPAC, SINGAPORE

"Likely to take some of the heat out of USD/INR but only at the margin. The RBI still maintains a hawkish bias and rate cuts still seem some way off. Asian data momentum has not been great in Q3 so difficult to see a dramatic improvement in Q3."

RAHUL BAJORIA, REGIONAL ECONOMIST, BARCLAYS CAPITAL, SINGAPORE

"There are some oddities in the number like if I look at the industrial production data, mining was negative and so was manufacturing, but that is not reflected in the GDP data and that's one source of the upside.

"Also, construction number looks abnormally strong. On paper this looks good, but there is some scope of revision in the GDP data. For RBI, I guess it will possibly help them to explain their anti-inflation stance. But even if on relative basis the number looks good, overall it is still weak. If we look at the first half of 2012, growth is 5.4 percent compared with 6.4 percent in second half of 2011."

MARKET REACTION

- The benchmark 10-year bond yield rose as much as 3 basis points to 8.23 percent from levels before the data.

- The rupee trimmed losses, trading at around 55.72 to the dollar from around 55.77 before the data was released.

- The Sensex and Nifty trimmed losses, and were down around 0.3 to 0.4 percent each.

- The 1-year OIS swap rose 3 bps to 7.78 percent, while the 5-year swap rates was up around 4 bps to 7.16 percent, according to traders.

BACKGROUND

- India's economy would grow at 6.7 percent in the current fiscal year, less than an earlier estimate of 7.5-8.0 percent, Prime Minister Manmohan Singh's Economic Advisory Council said two weeks ago.

- The country's wholesale inflation unexpectedly dropped to near three-year low of 6.87 percent in July from 7.25 percent in June, while consumer price inflation slowed slightly to 9.86 percent from 10.02 percent.

- Earlier this week, the Reserve Bank of India (RBI) Governor Duvvuri Subbarao said inflation remained too high and needed to fall further or risk more damage to the economy, dismissing criticism of the bank's hawkish stance.

- The country's industrial output fell for the third time in four months in June, adding to pressure on new Finance Minister Palaniappan Chidambaram to move quickly and pull Asia's third-largest economy from its worst slowdown in almost a decade.

- The HSBC Purchasing Managers' Index for the services sector, which gauges the activity of hundreds of Indian companies, slipped to 54.2 in July from June's 54.3 while for manufacturing, the index fell to 52.9 in July from 55.0 in June -- its biggest one-month drop since September last year.

- India sharply revised its GDP data to show a much worse economic performance than originally thought in the aftermath of the global financial crisis, putting renewed scrutiny on the reliability of government data.




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