The last quarter of 2008-09 might witness a growth less than seven per cent, the bank said in a review for the year adding that the growth reported in the first quarter had shown the largest drop between quarters for nearly four years. During January-March this year, the country's economy grew at 8.8 per cent.
HSBC, in a release here said, ''Growth was roughly in line with expectations and, we would say, has further to fall from here. We have long been relatively bearish about India's growth prospects this year (although the consensus has now largely caught up) and expect the year-on-year rate to drop to a low of a little less than seven per cent by the end of the fiscal year in January-March 2009, averaging 7.5 per cent in 2008/09 as a whole.
The economy is also unlikely to recover particularly quickly because of the renewed tightening of monetary policy delivered by the Reserve Bank over recent months (our current forecast foresees 7.8 per cent average growth in 2009/10 but the risks to this are probably on the downside). It was the earlier rate rises, combined with the real income and profit squeeze, that explained the current downturn it said.
It said the current downturn in the Indian economy is cyclical not structural in nature and there was no need to panic about the country's long-term growth prospects. ''In our view, the problem is that the general perception of what the trend/sustainable growth rate of the Indian economy is became too high (in effect, structural estimates were too cyclical) and is now being adjusted lower). Although admittedly extremely hard to judge accurately, we doubt that a 7.9 per cent growth rate is below trend.''
On the expenditure breakdown of GDP, there are a few points of interest to make. First, investment growth is clearly slowing, slipping to nine per cent from 11.2 per cent - its lowest rate since 2003. Although still consistent with a rising share of investment in GDP, the government wouldn't like to see this fall much further, but unfortunately probably will. Second, the growth in public consumption, having helped prop up 2008 Q1 GDP growth, slipped from 16.7 per cent to 7.7 per cent. Meanwhile, private consumption expanded by eight per cent - down only slightly from the 8.3 per cent rate of the first three months of calendar 2008. Export growth doubled to 19.5 per cent.