StanChart raises FY10 growth forecast to 6.8%

The Indian economy may grow by 6.8% in the current financial year, Standard Chartered Bank said in a note, revising its estimate from 6.4% following an unexpected jump in economic growth in July-September.

Asia's third-largest economy grew 7.9% in the past quarter from a year earlier, far above forecasts of 6.3% and the fastest in any quarter since June 2008.

"The strong industrial recovery in H2-FY10, on the back of a low base effect, is likely to support GDP (gross domestic product) growth," economists Samiran Chakraborty and Anubhuti Sahay wrote.

However, with an expected drop in kharif production reflected in the October-December quarter farm growth, a drop in the GDP growth figure compared with this quarter would not be surprising, the economists said, echoing remarks from the central bank deputy governor on Monday.

The central bank may hike the cash reserve ratio by January 2010, but a policy rate hike in January is a close call as policymakers would most probably like to see definitive signs of recovery before raising lending rates, the bank said.

The inflation rate may rise to 6.5-7% by end-March 2010, from 1.34% in October as per latest data.

"We believe that a higher-than-expected GDP growth number would give the Reserve Bank of India flexibility to calibrate its exit strategy on the basis of evolving inflationary pressures," the bank said.