India is headed for its worst period of growth since the global credit crisis and support from all major growth drivers for the economy will wane at the same time, the bank said.
Morgan Stanley cut gross domestic product estimates for fiscal year ending March 2012 to 7.2 percent from 7.7 percent and that of 2012-13 to 8 percent from 8.5 percent.
Late July, Standard Chartered Bank also pared its FY12 growth forecast to 7.7 percent from 8.1 percent previously.
The central bank's estimate for the current fiscal stands at a more optimistic 8 percent.
India's growth, which was holding up well until the quarter ended March, is showing clear signs of slowdown over last 3 to 4 months, with the car sales, two-wheeler sales, retail sales, investment and construction spending appear to be moderating, the report authored by analysts Chetan Ahya and Upasana Chachra said.
It cited a host of factors including --"persistently high inflation, higher cost of capital, cut in the ratio of fiscal spending to GDP, a weak global capital markets environment, and slow pace of investment - will cause a further slowdown in growth."
Indian factory growth fell for the third month in a row in July as a long series of interest rate hikes and faltering global demand weighed on new orders and output growth, a survey of business activity showed on Monday.
The RBI stunned markets last week by raising interest rates by 50 basis points, indicating that it was nowhere near the end of its policy tightening cycle and the focus was still firmly on controlling inflation.
The economy grew at its slowest annual pace in five quarters in January to March at 7.8 percent from a year earlier causing many to believe the central bank might rethink the pace at which tightens its policy noose.
However with headline wholesale price index (WPI) inflation at 9.44 percent in June, more than double the central bank's comfort level and expected to stay high in coming months, the RBI is unlikely to refrain from further rate hikes.
The Morgan Stanley report proposes fast tracking 25-30 core projects to kick start an investment cycle as well as accelerating the pace of policy reforms.
Bureau Report
