Growth outlook dim; Q4 GDP seen at 4.5%: Moody's

Economic woes are not over but the general election results have buoyed market sentiment this week. The victory of the incumbent Congress Party-led coalition has ensured continuity in policy direction and also created hopes for further economic reforms. The cash-strapped government may not be able to increase spending if the economic environment deteriorates, making policy reform the new focus in improving India's economic prospects. A new five-year term for Prime Minister Manmohan Singh, who has strong credentials in economic reforms, is an encouraging step. Investor confidence has strengthened after the election outcome was announced as some had seen political uncertainty as a setback to India's economic development. The Sensex and rupee both surged following the announcement of election results, as the longer-term outlook of India has brightened. Reforms will likely commence in long-anticipated areas such as banking, insurance and agriculture. Nevertheless, the upbeat sentiment in India may fade when the March quarter GDP numbers are released next week. Although India has not been crippled by the global turmoil in the same way as its more externally oriented Asian neighbours, it has still been hurt in various aspects. The robust export performance seen in the December quarter likely turned negative in the opening months of 2009. Meanwhile, facing falling profits, firms have become increasingly cautious, curbing investment and halting hiring plans. Private consumption and gross fixed capital formation - two important engines of India's growth - likely slowed sharply in the March quarter. Moody's Economy.com expects year-on-year GDP growth to have decelerated from an already-disappointing 5.3% for the December quarter to 4.5% for the March quarter, taking the fiscal 2008-2009 expansion to about 6.3%.