May 24 – Economic growth in India is expected to be around 6 percent in the second quarter according to a research report by Standard Chartered Bank.

“We expect growth to have slowed to 6 percent in Q2 from 6.1 percent in the previous quarter, thwarting initial market expectations of an improvement to 6.5 percent to 7.0 percent year on year,” the report said.

Elaborating on the reasons behind the dip in growth, the report also said that contractions in the March IIP, slower production of capital goods, and weaker consumption trends would be the key reasons behind the fall in GDP.

It also noted that industry has long suffered from policy inertia, high inflation, high interest rates, supply bottlenecks and slowing global demand, which was reflected in March IIP numbers, which in turn will pull down GDP growth numbers.

Factory output data shrank 3.5 percent in the last month. The research report also said that the services sector would report a slowdown in Q2. However, inflation, which was a problem last year, appears to be being tamed.

“Non-food and non-fuel inflation (core inflation) printed below 5 percent for a second consecutive month in April 2012. This is likely to allow the RBI to cut the repo rate by another 25 basis points (from the current 8 percent) on June 18, at its first mid-quarter monetary policy review of FY13,” the report said, also adding that slower commodity prices and increased concerns about the Euro area will support a rate cut.

“The over-hype of growth contraction news is a damaging and self-defeating angle to take. Both India and China have slowed from initial projections, but Indian growth at 6 percent is still very healthy, especially when compared to Europe and the United States. The global economy is still going through turmoil and these figures really suggest that Asia is the only region achieving anything of note,” suggests Chris Devonshire-Ellis, principal of Dezan Shira & Associates.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in India. For more information, please contact india@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.