Growth to lose shine, to dive to 6% next fiscal: JP Morgan

The country will not be able to sustain 8 per cent gross domestic product growth rate. The economic growth rate, according to an analysis by leading investment banker JP Morgan, will decelerate to 6 per cent during 2004-05. The report says while the economy has broken out of the 3-4 per cent Hindu rate of growth, “it is not certain that it can sustain 7-8 per cent growth rate without further economic reforms.” It suggests that the government use the current momentum to further lessen its role in the economy so that the country can unlock its growth potential.

The analysis further says potential backlash in the US over outsourcing, an industry that has given a global footprint to India, is worrying. It can have a negative impact on balance of payments position. Strong capital inflows will continue to put pressure on the rupee. The rupee can improve to Rs 43.80 per dollar by end-September. The government has decided to sterilise capital inflows and the cost will be borne by the exchequer. “Perhaps the central bank should be more flexible in allowing rupee appreciation”, the report suggests.

Referring to inflation, the report says the strong economic rebound coupled with higher global commodity prices will continue to fuel worries over the inflation outlook.

Saying that the state of fiscal finances remains India’s Achilles’ heel, the report points out that the combined fiscal deficit is around 10 per cent of GDP, offering little flexibility on fiscal behaviour. The government is unlikely to meet deficit targets without radical fiscal reforms, it added.