Reuters poll prunes India’s GDP growth outlook further

A recovery in developed markets later this year will boost India's flagging economy, but growth will be lacklustre at best as the Reserve Bank of India refrains from cutting interest rates in order to keep a battered rupee from falling further, concludes a Reuters poll released on Thursday.

The latest Reuters poll of over 30 analysts showed Asia's third largest economy is expected to grow 5.6 per cent in the fiscal year ending March 2014, compared to 6.0 per cent forecast in the previous poll in April.

The fiscal year ending March 2015 was forecast to show 6.5 per cent growth, down from a previous forecast of 6.9 per cent.

India, once considered a potential powerhouse for the global economy, has lost its sheen of late due to the slow pace of reforms, high inflation and a record wide current account deficit, the report said.

Growth slid to a decade's low of 5 per cent in the last fiscal year.

While the US economy is expected to pick up pace this year, Chinese growth is unlikely to gain traction next year as the government trades short-term growth for long-awaited reforms, according to other Reuters polls taken this month.

Having cut its policy repo rate three times this year to bring the rate down to 7.25 per cent, the Reserve Bank of India is expected to leave rates unchanged until the October-December quarter, as it tries to bolster a rupee which hit a record low of 61.21 against the dollar last week.

Speculation that the US Federal Reserve will begin tapering its mega-stimulus programme later this has hurt risky assets widely across Asia. Saddled with a record high current account deficit, the rupee has suffered the most among Asia's emerging market currencies.

On Monday, the Reserve Bank of India (RBI) raised short-term borrowing costs, restricted funds available to banks and said it would sell 120 billion rupees in bonds, effectively draining cash from the market.

The moves raised funding costs for banks and companies almost immediately, creating a ripple effect that could crimp growth in an economy expanding at its slowest in a decade.