RBI's tight policy to moderate growth in 2008: S&P

The Reserve Bank's tight monetary policy is expected to moderate India's economic growth rate to 8.1 - 8.6% in 2008, against 8.5 - 9% in 2007, Global rating agency Standard and Poor's said today.

However, India is relatively immune to US sub-prime crisis-triggered credit woes with domestic growth driving demand, the rating agency said in its 2008 outlook for Asia-Pacific financial market.

But domestic drivers may be face inference due to high global oil prices as India continues to see a rapid growth in energy consumption, and this may impact the ability of the Indian economy to grow under its own steam, the report said.

S&P has kept a neutral outlook on the Indian equity markets, saying additional foreign inflows may be muted due to the recent moves by the market regulator SEBI to limit foreign fund inflows via off-shore derivatives.

Politics is likely to continue to weigh heavily on the credit rating of sovereigns in the Indian sub-continent, S&P said, adding India's outlook is stable with fiscal consolidation commitments across all government levels, and state finances having shown vast improvements.

The global rating agency said projected moderation in growth reflects soft landing, taking the Indian economy closer to its current trend growth rate estimated at 8.5%.

"Overall, while global developments have made the environment more risky, the strength of domestic demand is expected to keep the Indian economy on a relatively high growth trajectory," S&P's Asia-Pacific Chief Economist Subir Gokarn said.

Indian economy posted a 8.9% growth for the second quarter this fiscal, prompting Finance Minister P Chidambaram to maintain that the GDP growth is expected to remain close to 9% for this fiscal.

Indian corporates would not generally be adversely impacted by a potential contagion in global and regional credit markets.

"Strong domestic and export demand continues in line with expectations and Indian corporates are not likely to face significant challenges in accessing resources," said Anshukant Taneja, Senior Director with S&P's Asia ex-Greater China.

While outlook in this regard is stable, a bias persists with entities pursuing rapid inorganic growth with leveraged buy-outs and debt supported expansion.

The outlook on Indian banking and insurance industry is stable with strong growth likely to continue in 2008.

Though S&P kept neutral outlook on Indian equity market and said foreign inflows may be low due to curbs on Participatory Notes, its head for Asia-Pacific equity research Lorraine Tan said: "We believe that the market is at a comfortable point with corporate earnings growth to support further upside in 2008."

In October, the Securities and Exchange Board of India had banned the foreign institutional investors and their agents from issuing fresh Participatory Notes in derivatives market and imposed curbs on such instruments in spot markets.