The Hindu : Business : S&P sees soft landing for India’s GDP growth

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Thursday, Dec 06, 2007
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S&P sees soft landing for India’s GDP growth

Special Correspondent

Domestic growth drivers may be hindered by oil prices

Economy projected to grow at
8.1-8.6 per cent
Stable outlook for banking, insurance sectors

MUMBAI: The Reserve Bank of India’s recent measures are expected to slow down economic growth marginally in 2008, with real GDP growth projected at about 8.1-8.6 per cent, as against 8.5-9 per cent in 2007, Standard & Poor’s said in its 2008 Asia-Pacific Markets Outlook report, released on Wednesday.

With domestic forces driving demand, India is relatively immune to U.S. credit woes. However, India continues to see a rapid growth in energy consumption and hence domestic growth drivers may be hindered by oil prices remaining at these levels for any sustained period and this may impact the ability of the Indian economy to grow under its own steam, the report says.

Subir Gokarn, Chief Economist, Standard & Poor’s, Asia-Pacific, concludes, “Overall, while global developments have made the environment more risky, the strength of domestic demand is expected to keep the Indian economy on a relatively high growth trajectory. The moderation to 8.1-8.6 per cent this year reflects a soft landing, taking the Indian economy closer to its current trend growth rate, estimated at 8.5 per cent.”

Overall, economies in the Indian sub-continent, on the whole, have proven resilient to the vagaries of politics in the past, and are likely to continue to be so in 2008. Overall corporate credit outlook is stable but negative bias remains; banking and insurance sector growth continues to be strong.

Indian corporates generally would not be adversely impacted by a potential contagion in global and regional credit markets. “Strong domestic and export demand continues in line with expectations, and Indian corporates are not likely to face significant challenges in accessing resources,” said Anshukant Taneja, Senior Director, Corporate and Infrastructure Ratings, Standard & Poor’s Rating Services, Asia ex-Greater China.

While outlook is stable, a negative bias persists with entities pursuing rapid inorganic growth with leveraged buy-outs and debt supported expansion.

The outlook on the Indian banking and insurance industry is stable with strong growth likely to continue in 2008. “In 2008, the Indian banking system, which has been unaffected by the U.S. subprime markets, will continue to reap benefits of strong domestic economic growth,” said Ritesh Maheshwari, Senior Director, Financial Institutions Ratings, Standard & Poor’s Rating Services, Asia ex-Greater China.

“We are largely neutral on the Indian equity markets as additional foreign inflows may be muted owing to recent government moves to limit foreign fund inflows via offshore derivatives; but believe that the market is at a comfortable point with corporate earnings growth to support further upside in 2008,” said Lorraine Tan, head of Asia-Pacific equity research for Standard & Poor’s Equity Research.

Asia-Pacific

The economic outlook for Asia-Pacific in 2008 is relatively robust, but debt and equity markets in the region could face increasing pressure in the year ahead, despite having emerged relatively unscathed from the recent turbulence in global markets.

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