Country Economic Forecasts > India

Consumer price inflation has fallen sharply from 6.1% in July to 4.3% in September, pulled down by a steep decline in vegetable prices. And with annual industrial production growth in the red for the sixth month out of the last ten, we now think that another 25bp cut is likely in December, ahead of a potential Fed rate hike. The minutes of the RBI October meeting point in a similar policy direction by painting a particularly weak picture of the current situation in the industrial sector. The minutes highlight that there is a need to nurture the emerging 'green shoots' of growth, given the benign inflation backdrop. This, in turn, is expected to lead to a pick-up in growth momentum, largely on the back of domestic factors, while external demand may 'slacken' further because of the continued sluggishness in world trade.Meanwhile, our bottom-up analysis of growth suggests that the economy may have passed its low point; albeit with the 'true' pace of growth closer to 6% rather than the 7% suggested by the national accounts, and the recovery lop-sided, with industry still quite subdued. Also, the risks to the view remain to the downside. The global economy remains in flux and we do not rule out the possibility of downgrading our growth forecast if global demand weakens again and triggers more financial market turmoil.