Investment demand unlikely to pick up in India, interest rates too high, says BofA-ML

Feb 24 2014, 17:29 IST
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Bank of America Merrill Lynch says potential growth rate of India is 7.5 per cent, higher than the 7 per cent pegged by the govt. Bank of America Merrill Lynch says potential growth rate of India is 7.5 per cent, higher than the 7 per cent pegged by the govt.
Summary'Govt may have cleared Rs 4 tn in stalled projects, but investment demand in India to stay slow.'

In spite of the government clearing over Rs 4 trillion in stalled projects since last June, foreign brokerage Bank of America Merrill Lynch today said it is unlikely that investment demand will pick up till 2015 because of the high interest rates.

"We remain bearish on investment picking up till 2015. While fast-tracking may help, lending rates are still too high to kick start projects," it said.

It can be noted that over the past eight months, the government---which has been criticised for a 'policy paralysis' -- has cleared over 120 projects entailing an investment of over Rs 4 trillion, out of a total of Rs 18 trillion in projects which are stuck for want of clearances or land acquisition issues.

With an eye to tame inflation, the Reserve Bank has delivered three rate hikes since Governor Raghuram Rajan took over in September. However, the price rise scenario has shown signs of cooling lately.

BofA-ML said it expects lending rates to come down by up to 0.75 per cent in FY15.

The brokerage also said there are "upside risks" to Finance Minister P Chidambaram's fiscal deficit target of 4.1 per cent for FY15 as projected in the interim budget.

It added that a fiscal consolidation with a reliance on cutting expenditure is not the right strategy and may not be sustainable over time.

It also said the potential growth rate of India is 7.5 per cent, higher than the 7 per cent pegged by the government.

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