Credit Suisse - India Economy

Credit Suisse in their report on Indian Economy is pretty bullish on 10% growth.

They say,

We expect 4Q FY06/07 GDP growth, due to be released on
31 May, to come in at 10% YoY versus consensus 9.5% and the
3Q FY06/07 figure of 8.6%.

The manufacturing and services sectors are not showing much
signs of slowing.

Our FY07/08 GDP growth forecast is 10%. The risk to this forecast
is we are too aggressive on our forecast for private consumption.

We expect the RBI to continue to tighten monetary policy in
FY07/08.

We expect 4Q FY06/07 GDP growth to come in at 10% YoY versus consensus 9.5% and the 3Q FY06/07 figure of 8.6% In our view, GDP growth may remain stronger for longer compared to consensus estimate of 8% for FY07/08. The manufacturing and services sectors are not showing much signs of slowing . The slowing we are observing on the growth front is in consumer durables IP, property market transactions,cement production, commercial vehicle sales, motorcycle sales and
passenger car sales. The prime minister has mentioned that he expects GDP growth to exceed 8.5% in FY07/08, which is a surprising statement considering the RBI's forecast for the year is 8.5%.

Our FY07/08 GDP growth forecast is 10%. The risk to our 10% GDP growth forecast is we are too aggressive on our private consumption growth forecast of 7.8%. In FY06/07, private consumption growth was 7.3%. From the demand side of the economy, we expect investment spending and consumer staples to remain robust in FY07/08. Consumer durables spending is the area where downside surprises may arise. We remain confident about our fixed investment growth forecast of 15% versus consensus 10.5% and FY06/07 12.5%.

We expect the RBI to continue to tighten monetary policy in FY07/08. With the current pace of GDP growth unlikely to slow significantly in the next two quarters, inflation likely to pick up in the July-December 2007 period, and large capital inflows likely to persist, we expect the RBI to continue to tighten monetary policy in FY07/08.

Our FY07/08 average WPI inflation forecast is 5.5% versus consensus 5.1% and the RBI's 5%. We expect the repo rate to rise to 8.25-8.5% by end-March 2007 from the current 7.75%, additional cash reserve ratio hikes, and sector-specific policies to be implemented. In addition, our USD:INR forecast of 40-40.5 by end-March 2008 may be too conservative. We believe imported commodity inflation may be an important driver of headline WPI in FY07/08. With global food and base metals prices likely to accelerate in 2H07 and feeding through to the WPI, the exchange rate management policy response of the RBI may be to allow a faster pace of INR appreciation than we are
currently anticipating.