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Citi retains India's growth forecast at 5.5%

May 18, 2009 17:59 IST

Financial services firm Citi on Monday retained its projections for India's economic growth at 5.5 per cent for the current fiscal, but it may raise its forecast in future as the incumbent Congress-led alliance would spur investment.

"The UPA's clear majority would now spur investment growth as well. While this does lend an upward bias to our growth estimate of 5.5 per cent for FY'10, we maintain our forecast until we have further clarity on policy measures," Citi said in a research report.

It further said that as the trends in inflation have remained benign, it does expect any significant changes in monetary policy.

"Our forecasts continue to factor in a 50 bps easing in policy rates," the report added.

To boost the economy, the government came out with three stimulus packages -- in December last year, in January and in the interim Budget in February, providing incentives to various sectors.

The Reserve Bank of India also took monetary easing measures by infusing more than Rs 4,00,000 crore (Rs 4,000 billion) since October.

However, the Indian economy could manage only 5.3 per cent growth in the third quarter of 2008-09 as industrial growth turned negative in October and December.

Citi said that more reform-oriented measures are on the cards and it is likely that there would be more flexibility in policy-making.

"Apart from reforms. . .such as pension and insurance sector reforms, banking sector regulations, disinvestment, as well as further liberalisation in FDI; we are likely to see a further thrust to judicial reforms, labor laws, and a greater role for the private sector in infrastructure investments," Citi added.

It said, however, India's fiscal deficit has ballooned due to an economic slowdown, fiscal stimuli, oil subsidies, and pre-election government spending.

"This is a stress point -- and over the longer term, it does need to be kept in check if India is to maintain relatively modest interest rates, and support growth," it said.

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