India's days of 8 per cent growth are gone: Moody's Analytics

Moody's Analytics has said the Indian economy has bottomed out and recovery is on the anvil, although the days of 8 per cent growth are "gone".

India's economy expanded by over 9 per cent in the three fiscal years before the global financial meltdown of 2008 and authorities have repeatedly maintained that the country has a potential to grow between 8-9 per cent.

"The economy is nearing the bottom of the current cycle and there is recovery in sight as investment should improve from the fourth quarter, as the government has been actively trying to restart stalled investment projects, both from the public and private sectors," senior economist at Moody's Analytics Glenn Levine said in a note.

"Yet the recovery will be modest, as weak business sentiment will take time to turn around. We expect fixed investment to grow 3.5 per cent in 2014 after being flat in 2013," he added.

The arm of the global credit ratings agency Moody's also said: "The days of 8 per cent GDP growth are gone. We expect the Indian economy to hit its potential growth rate of 6.5 per cent by the second half of 2015."

Moody's said that a combination of good luck and modestly better policies will drive a steady acceleration in economic activity, although the upturn will be patchy and difficult to see for six months or so.

Weak investment and consumer demand have slowed growth over the past three years, Levine said, adding that the economy is nearing the bottom of the current cycle.

In 2008-09, growth slipped to 6.7 per cent but picked up to 8.6 per cent in the following year and further rose to 9.3 per cent in 2010-11. Thereafter, it started declining and slowed to a 10-year low of 5 per cent in the 2012-13 fiscal.

Levine said the financial markets have recovered modestly since September as new Reserve Bank of India (RBI) Governor Raghuram Rajan has lifted sentiment, but added that the fundamental problems remain unsolved.

The note is comforting as IMF last week had pegged GDP growth at 3.75 per cent citing weak demand from its earlier projection of 5.7 per cent.

Rebutting IMF projection, Finance Minister P Chidambaram had said: "We do not share this pessimistic outlook".

The World Bank on Wednesday pegged India's growth at 4.7 per cent. GDP growth slowed to a three-year low of 4.4 per cent in the April-June quarter of 2013-14.

Moody's said, however, that the past three years have led investors and businesses to reassess the entire India story. Expectations of 8 per cent or better GDP growth have been "supplanted by a more realistic assessment" of 6-7 per cent, it added.