The Asian arm of Credit Suisse -- one of the world's largest banks -- has, in its annual economic outlook for Asia, sought to allay fears of the global and domestic liquidity crunch leading to a slowdown in the Indian economy.
Predicting further slowdown in US consumption and tightening of interest rates worldwide, the Hong Kong-based bank pointed to government spending as the key to maintaining growth over the next six to 12 months.
Forecasting 8.5 per cent growth in India's GDP against the country's central bank's projection of 7.5-8 per cent, the bank said it expected investment growth and industrial production across sectors to remain stronger than previous estimates.
"We see limited signs of a credit crunch emerging in the next 6-12 months... We expect the RBI to continue injecting liquidity... the lock-in period for time deposits (for tax exemptions) may be reduced to three years, time deposit rates may rise as the RBI continues to hike the reverse repo rate and state governments accelerate spending on development projects. We also expect further capital account liberalisation by the end of the year," the report said.
The bank gave good news on the flow of foreign exchange into the country, which has taken a beating with withdrawals of more than $2 billion over the last three months by foreign equity investors.
Credit Suisse cut its current account deficit target for the year from 3.4 per cent of the GDP to 2 per cent on the basis of strong growth in manufacturing and software exports, and remittances and a slowdown in the outflow of foreign equity investment.
However, it expects export growth to slow down to 29.8 per cent this year, from 37.3 per cent last year, on the back of a steep decline in import growth from 44.6 per cent to 29.5 per cent.
Thus, exports will grow faster than imports after a gap of two years. The report also predicted 20 per cent jump in foreign direct investment in India to $6 billion this year.
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