Worst is not over for Indian economy: Moody’s


New Delhi : The Indian economy is unlikely to grow more than five percent in 2009 as “the worst of the global economic crisis is yet to come”, according to the research arm of the global rating agency Moody’s.

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“GDP (gross domestic product) growth will unlikely exceed 5 percent in 2009, but a rebound in the opening quarter of 2010, which is dependent on a US rebound in the December quarter, should lift annual expansion to about 5 percent for 2009-10,” said Sherman Chan, an economist with Moody’s Economy.com, Friday.

Calling the government’s projection that the economy would grow 7.1 percent this fiscal “wildly optimistic”, Chan said: “The positive sentiment is expected to be short-lived. India essentially only started feeling the pinch of the global downturn in the December quarter and the worst is yet to come.”

Economy.com expects another notable slowdown in the last quarter this fiscal which would bring down the annual growth rate to about 6.3 percent.

“Market sentiment is still unstable in India. So far in 2009 there has been a net outflow from the Indian stock market as the global turmoil drags on,” it said in a report.

However, foreign direct investment has been reportedly strong in the current quarter, rebounding from a massive 25 percent year-on-year decline in the third quarter.

The report said long-term investors would continue to see India as a potential destination, while speculators would flee the country if the situation worsened further.

“More portfolio investment could be withdrawn in coming months if India’s economic outlook worsens,” it said.

The agency also expressed concerns over the tight liquidity situation in India.

“Firms are not only issuing bonds to raise funds, but now also use the option of deposit taking. As the current focus of many firms is to refinance debt and survive the financial turmoil, investment is expected to be subdued this year,” it warned.