Rating agency Moody's today said Indian economy is expected to have grown by little more than 5.5 per cent in last quarter, and an initial spike in investor sentiment after recent reforms has faded and the "reality of India's deep-seated structural problems" has begun to set in.
The reforms proposed by the government may help reduce thekey risks facing the economy but cannot lift the near-term outlook, Moody's said, while adding that the economy is growing well below its long-term potential.
It, however, said that the growth rate could be near the bottom of its current downward cycle.
The country's GDP numbers for July-September quarter is scheduled to be announced next week on November 30.
Moody's said that the growth rate for that quarter could be "a little more than 5.5 per cent year-on-year, roughly the same as in the first two quarters (of calendar year 2012) but substantially below where GDP was 12 months ago."
"This underscores the economy's challenges, and it will be a while before GDP growth is back at its trend rate. Our outlook is for a steady upturn in growth across the coming quarters before growth finally hits potential by the second half of 2014," Moody's said.
India had been growing around 8-9 per cent before the global financial meltdown of 2008. The growth rate in 2011-12 slipped to a nine-year low of 6.5 per cent.
Finance Minister P Chidambaram has said India's economy should expand by 5.5-6 per cent this fiscal.
"Recent economic data have been broadly in line with expectations," Moody's said and added that the corporate sector remains the weakest pocket of the economy.
"The corporate sector remains the weakest pocket of the economy, with sentiment weighed down by external weakness and, more important, the Congress-led government's cack-handed management and policy making in its second term," it added.
Going forward, the third quarter GDP forecast is likely to be slightly better than the June quarter driven by industrial production, which was a little better in the three months to September along with some slightly better trade figures.
"Better industrial production figure, along with some slightly better trade figures, lifts our third quarter GDP forecast above that from the June quarter, but not by much, and anything with a '5' at the front of it must be considered disappointing," it added.
Moody's further said that the initial bounce in investor sentiment following the announcement of economic reforms has faded, and the reality of India's deep-seated structural problems has begun to set in.
In the two months to October the Sensex rose 15 per cent and the rupee up 8 per cent against the US dollar. But the Sensex has dipped in recent weeks, while the currency has given back most of the recent gains.