POLL-Worst may be over for India's economy, if reforms stick

* For poll data click on
* India's GDP growth to improve in quarters ahead
* Inflation seen picking up pace, average 7.6 pct this year
* 25 bps of rate cut seen by Dec 2012

By Rahul Karunakar
BANGALORE, Oct 11 (Reuters) - India's growth slump has
passed and the economy will gradually recover over the next
year, a Reuters poll showed, but the rate of expansion for this
fiscal year will still be the weakest in a decade.
The poll of 35 economists, conducted Oct. 1-10, showed
India's gross domestic product probably grew 5.6 percent
annually in the quarter just finished and will pick up speed
slightly to expand 5.7 percent in the current quarter.
Economic growth in Asia's third-largest economy probably
bottomed out in the quarter to March, when it eased to 5.3
percent from a year earlier, the slowest in nearly three years.
While weak demand from the West has hit Indian exports, the
heaviest drag has come from government overspending and a lack
of reforms needed to spur investment, a point made by ratings
agencies Standard & Poor's and Fitch Ratings, which have
threatened to downgrade India's sovereign credit rating to junk.

To address those concerns, New Delhi last month announced
long-awaited reforms such as raising the price of subsidised
fuel to rein in the budget deficit and increasing foreign
investment caps in the retail, aviation and broadcasting
sectors.
"These reforms will improve business sentiment and encourage
domestic and foreign companies to invest in India, more than
they would have otherwise have done, although (they) will not
have a dramatically positive impact overnight on Indian economic
growth," said Robert Prior-Wandesforde, the director of Asian
economics at Credit Suisse in Singapore.
The full-year growth rate for the current fiscal was also
slashed in the Reuters survey to 5.7 percent from 6.3 percent in
the July poll. If realised, that would be the weakest yearly
rate of growth in a decade.
Growth predictions for this fiscal year have now been cut in
every poll since April last year and highlights the perilous
state of an economy which once roared with near-double digit
growth rates.

EUROPE, DOMESTIC REFORMS KEYS TO RECOVERY
Part of the rebound in growth seen in coming quarters will
also be due to the comparison with the year-ago figure, or base
effect, which could obscure the actual strength of the recovery.
"The March quarter was the bottom and we will see a modest
further recovery from here," said Prior-Wandesforde.
"Especially as we are entering a period when base-effects
become very easy to compare with a period that was weak, so it
has to be a awful lot weaker than it was last year, when the
high interest rates were having maximum effect on growth."
The International Monetary Fund slashed its India forecasts
on Monday, predicting growth of 4.9 percent this calendar year,
down from a forecast in July of 6.1 percent. It pencilled in 6.0
percent growth in 2013.
The poll consensus is for growth of 6.6 percent in the next
fiscal year, but that could be in jeopardy if there is no
resolution to the prolonged euro zone debt crisis, seen as a
necessary catalyst for a global economic recovery.
"We expect a gradual recovery in growth next year, but this
recovery is based on a continuation of pick up in reforms
announced recently which is important for investment cycle,"
said Leif Eskesen, chief economist for India and ASEAN at HSBC
in Singapore.
"And also on a gradual stabilisation in global economic
conditions which will have positive implications on exports."

MORE EASING ON THE WAY?
The Reserve Bank of India has waged a prolonged and
unsuccessful battle to bring down inflation, raising interest
rates 13 times between March 2010 and October 2011.
But in April this year, it surprised markets by cutting the
main policy rate by 50 basis points to 8 percent to spur slowing
economic growth.
Since then, the central bank has shifted the onus of
reviving growth onto the government.
Still, though inflation expectations were pushed up in the
poll, economists predict another 25 basis points cut in interest
rates to 7.75 percent by the end of this year, in line with a
poll taken last month.
"We need to see inflationary pressures dissipate before the
RBI will be comfortable on cutting interest rates," said
Eskesen.
The poll consensus predicted inflation at 7.6 percent in the
year ending March 2013 before easing to 6.9 percent the
following year, both much higher than the 7.4 percent and 6.5
percent forecast in July's poll.

(Polling and analysis by Deepti Govind; Editing by Kim Coghill)