Recently, Morgan Stanley reduced India's growth forecast to a disappointing 6.3 per cent for the year ending March 2013. Meanwhile, the rupee is on a relentless decline for the last several weeks, down to Rs.56/USD mark in the last few days. There is talk of further declines in the coming days.
With few international bright spots of growth, India would be hard pressed to revive growth without internal change.The recent petrol price hikes are raising optimism that the government may enact some reforms. There is already pressure to roll back the price hikes on petrol. If they cave in this time, there is a lot more strife to follow. And the pain could last very long.
Traders say the rupee, which is Asia's worst-performing currency this year, has proven particularly vulnerable to the global risk aversion given the steep fiscal and economic challenges facing the country.A new round of elections in Greece slated for June could result in it's exit from the Euro. There is talk of the Euro crisis dragging on for another two years. China, one of India's largest trading partners is entering a phase of lower growth. Every passing day seems to bring new evidence of a sharp slowdown in China. Apart from declines in house prices and rising inventory of cars in dealerships, there are instances of raw material shipments being deferred and defaults on contracts.
"With just six months worth import cover, twin deficits, lack of confidence in the coalition government with regards to reforms, and also failure to attract foreign flows, suggests the INR is likely to hit 56-56.50 in the next two months," said Pramod Patil, a FX dealer at United Overseas Bank.
With few international bright spots of growth, India would be hard pressed to revive growth without internal change.The recent petrol price hikes are raising optimism that the government may enact some reforms. There is already pressure to roll back the price hikes on petrol. If they cave in this time, there is a lot more strife to follow. And the pain could last very long.
