Growth indicators for the Indian economy are showing signs of stabilisation but the macro economic environment still remains challenging, particularly with regards to inflation, says a Morgan Stanley report.
Government projects under implementation and real estate activity indicators picked up in the third quarter of 2012 and there was also sequential improvement in the region's exports but macro environment still remains stretched, it said.
"While incoming data for growth indicators have shown some signs of stabilisation, the macro environment remains challenging as reflected by persistently high inflation, elevated trade deficit, high credit deposit ratio," the Morgan Stanley research report said.
It termed the recent reforms push by the government -- allowing FDI in multi-brand retail, aviation and broadcasting, hiking diesel price, capping the number of subsidised LPG cylinders, opening up pension sector to foreign investment and raising the FDI cap in insurance to 49 per cent -- as a positive sign and said that such moves will support investment sentiment.
However, the report added that there are very slim chances of a quick correction of the fiscal deficit via expenditure control.
The April-August central government expenditure and fiscal deficits have risen by 19.7 per cent and 23.4 per cent respectively, higher than the
Budget targets for the full year.
Government spending accelerated to 32 per cent year-on- year (YoY) in August even as gross tax revenue growth slipped to 7.9 per cent.
The report further added that no major efforts by the government are likely to manage rural farm workers' wage growth or improve the productivity of these workers and accordingly the "correction in macro stability indicators, particularly inflation, will remain very slow".
The Wholesale Price Index based inflation accelerated to 7.8 per cent YoY in September, from 7.6 per cent in August, due to the impact of diesel price hike. Retail inflation accelerated to 10.3 per cent YoY in Aug from 9.8 per cent in July.
Source : moneycontrol.com