India sees further signs of slowdown

India's economy showed further signs of slowdown on Monday, with July factory expansion the weakest in 20 months, a government panel cutting its growth forecasts and its top car maker posting a steep drop in sales.

Morgan Stanley also became the latest bank to cut its outlook for Asia's third-largest economy, predicting economic growth in the fiscal year that ends in March of 7.2 per cent, from 7.7 per cent earlier.

'A combination of factors — including persistently high inflation, higher cost of capital, cut in the ratio of fiscal spending to GDP, a weak global capital markets environment, and slow pace of investment - will cause a further slowdown in growth,' Morgan Stanley economist Chetan Ahya wrote on Monday.

The HSBC Markit Business Activity Index , based on a survey of around 500 companies, fell to 53.6 in July from 55.3 in June, its third straight decline, although it remained above the 50 mark that separates growth from contraction for the 28th consecutive month.

Monday's July PMI reading reflected the impact of a steady rise in domestic interest rates as well as the dampening of demand from key markets such as the United States and the euro zone, which are reeling from their own respective debt crises.

A top Indian government economic advisory panel on Monday cut its growth forecast for the current fiscal year to 8.2 per cent, from a 9 per cent target in February. The Reserve Bank expects growth of roughly 8 per cent this fiscal year.

The prime minister's Economic Advisory Council also said that meeting fiscal targets set in the government's annual budget 'present a significant challenge.'

It said India's fiscal deficit could touch 4.7 per cent in the year to March 2012, slightly above New Delhi's target of 4.6 per cent, and advised stronger measures to increase revenue intake and cut spending.

Private economists have long been sceptical of the deficit goal, and investors expect the government to increase borrowing this year.

'We see challenges not just from expenditure but also in terms of revenue,' said Shubhada Rao, chief economist at Yes Bank in Mumbai.

The Indian economy grew at 8.5 per cent in the fiscal year that ended in March.

Source : New Age