Another growth prediction for India - 4.6%

CLSA sees India GDP growth at just 4.6%

Broking house CLSA Asia-Pacific Markets on Wednesday termed India as one of the riskiest markets to be invested in at the moment. The outfit has forecast a GDP growth of 4.6% in 2009-10, and expects the domestic economy to stabilise only by early 2010. Further, it has projected public sector deficit to rise to 14% of GDP in 2009-10, and the rupee to fall to 57 to the dollar by the end of this year.
The broking house, however, has said an Argentina-styled debt crisis was unlikely. “The bulk of Indian government debt is domestically held and Indian banks are eager buyers of government securities. However, not only is the government’s $500-billion infrastructure programme on the back burner, but the spread between private and public sector borrowing costs has widened, bad news for private investment spending,” the note said.
CLSA opines that capital outflows — both portfolio and FDI — could continue for some time. “A rapidly widening budget deficit, coupled with slowing growth, falling investment returns, a substantial current account deficit and growing global risk aversion (which is underpinning the flight to safety into the $) suggest that these trends will continue,” it said.
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CLSA makes some astounding and ridiculous predictions. Here is my take on it-
CLSA has a forecast of 4.6% in 2009-10 and projects that deficit will rise to 14% of GDP. I strongly believe that a forecast of 4.6% is based on the assumption that India’s fundamentals are weak and are further weakening- something I strongly disagree with. Also, if the deficit actually rises to 14% (from current ~5%) then India would not be growing at 4.6% but somewhere around 7%. For the debt/GDP ratio to reach ~14%, India will have to make some huge investments and this is exactly what is required at the moment (although may be not as much predicted by CLSA). So the growth and deficit predictions are counterproductive

All in all- I don't agree with anything that they are saying and I am sure I am not the only one.