Economy growth to cool down: MS

By agencies   |   Friday, 25 November 2005, 08:00 Hrs
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MUMBAI: IndiaÂ’s economic growth could slow down in the near future aided by factors like drying liquidity, hike in the interest rate and the resultant slump in consumption, JM Morgan Stanley said in its November report.

"We believe that Fed rates and concerns on potential inflationary pressure, credit failure risks and asset bubbles will ensure a continued tightening in monetary policy over the next 12 months. This, we believe, will weigh on domestic consumption growth. The good news is that the investment cycle will improve supporting growth, but some pull back is inevitable in the near term," the report said.

The report said India has been living on debt more than any other non-Japan Asian country or even the U.S. This is reflected in the growth in consumer goods segment of industrial production that recorded a ten-year high during the 2004-05 period.

A steep hike in debt as a percent of GDP is supposed to have shot up consumptions and in turn, the growth. But with the central bank making money dearer, consumption levels are expected to fall, the report said.

On the other hand, one of the major concerns is the slower than expected growth in investments. Though announced and proposed capital expenditure (Capex) as a percentage of GDP has shot up sharply, Capex under implementation is barely growing at the nominal GDP growth rate, the report said.

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