India's gross domestic product (GDP) growth will moderate in 2010 at 5.5 per cent, driven by a contraction in exports, a further deceleration in investment growth and a moderation in consumption, Citi Group said in a new report, India Macroscope.

''Incremental data across sectors such as autos, real estate and exports, as well as loan growth do not paint a good picture. We maintain our view that the synchronised global recession, coupled with dramatic changes in the financial landscape, is likely to result in 5.5 per cent GDP in FY10E,'' the report said.

While the impact of the global headwinds on growth has been debated sufficiently, it is worth keeping in mind the growing impact of the tailwinds in play. These include the coordinated response to the crisis including monetary and fiscal stimulus as well as a collapse in commodity prices. Both these factors should help enable FY11 growth rise to 6.6 per cent, it added.

Given that first halh of FY09 GDP was 7.8 per cent, the FY09 GDP figure indicates that growth during Oct 08-March 09 was 6.4 per cent. This appears optimistic given that recent data has been worse than anticipated. For instance, industrial production contracted 2 per cent in December with the cumulative growth during April-December at 3.2 per cent v/s 9 per cent last year.

Exports reportedly contracted 22 per cent in January – the fourth consecutive month in a row. Likewise auto and real estate transactions have taken a knock.

The Economist Intelligence Unit in its 17 February report on country forecasts also said that global deleveraging and attempts to reduce risk exposure will continue to hit India hard. It forecasts real GDP growth of 5 per cent in fiscal year 2009-10 (April-March), after an estimated 5.3 per cent in 2008-09.

On the contrary, the Central Statistical Organisation (CSO) estimates FY09 GDP growth at 7.1 per cent. Growth was led by agriculture (up 2.6 per cent), and industry (including construction at +4.8 per cent), while services surprised on the upside coming in at a robust 9.6 per cent. Looking at GDP by demand, in line with expectations, investment growth slowed to single digits for the first time in six years.

Consumption growth remained buoyant at 8.2 per cent with the deceleration in the private sector at 6.8 per cent being offset by the pay revision which gets accounted under public consumption up 16.8 per cent.

Earlier, Asian Development Bank's (ADB) annual economic publication forecasts that following a slowdown in 2007, India's economic growth would rebound to 8.5 per cent in FY09 on the back of a pick-up in consumer spending and more accommodative monetary policy.

The Citi report also maintains its view of an additional 100-150 bps (between one and one and a hals percent) easing in bank rates. ''However, the higher than expected deficit projected for FY10 is likely to keep the pressure on bond yields and result in a steeper curve. On the rupee, we expect the unit to trade at about Rs48.5 per dollar in 2009. With risk aversion coming back into play, the unit is likely to trade at the upper end in the near term'', it said.

After another 100-basis-point interest rate cut on January 2, the Economist Intelligence Unit also expects the Reserve Bank of India (RBI) to make further rate reductions in the next few months.

The bank keeps monetary policy tight and the government takes measures to rein in inflation ahead of the parliamentary elections scheduled in May this year.

Job losses
On the job front, with most of the 'officially reported' 500,000 job losses during the last quarter in India, both the fiscal stimulus packages implemented so far lay a special emphasis on exports. While the government has increased outlays for its social sector schemes, which will boost rural employment, more needs to be done on the urban front, the report noted.
 
Over 5 million jobs have been lost in the US since the start of the ongoing recession and the unemployment rate is now at 7.6 per cent, the highest since September 1992. In Japan, known for its implicit guarantee of employment, the brunt of the downturn is being felt by temporary or contractual workers, while in China, the government has admitted that 20 million workers have lost jobs due to the recession (See: China demands loyalty from the military as 20 million lose their jobs). Citi economists expect the unemployment rate in US is to rise to 8.7 per cent by the end of 2009. Moreover, the ILO has predicted that global unemployment could rise by a range of 18 million to over 50 million workers from 2007 levels.  
 
Given the recent pay revision in India, public sector consumption growth will likely hold, but increasing job losses and wage freezes across sectors have already begun impacting consumption - particularly discretionary spending. Another fallout of rising unemployment would be an increase in poverty levels, since the crisis would slow rural-to-urban migration, with many workers returning to low-paid agricultural jobs, the report noted.