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Morgan Stanley economists Chetan Ahya and Mihir Sheth upgraded their GDP growth forecast for India for 2007 from 6.8% to 7.6%, while continuing to expect a slowdown in growth for the second half of 07. Below is an excerpt from their analysis:

The growth trend in corporate revenue, industrial production and automobile segment sales points to a rebound in the quarter ended June 2006. The aggregate BSE 200 corporate sales growth (excluding energy companies) accelerated sharply to a new high of 28% YoY during the quarter ended June 2006 from 18% during the quarter ended March 2006. The official industrial production data also point towards re-acceleration in growth to a 10.1% average in the quarter ended June from 8.7% in the quarter ended March. The automobile sector, which is one of the most economic growth-sensitive sectors, has also witnessed a significant bounce-back. The official GDP growth estimate for the quarter ended June, likely to be released on September 29, should corroborate this trend.

[...]We now expect the industry and services segments to register growth of 8.7% and 9.2% in F2007, as compared to our earlier estimates of 7.2% and 8.0%, respectively.

However, weaker-than-expected agricultural growth will offset a part of this upside in non-agriculture growth. We are cutting our forecasts for agriculture segment growth in F2007 to 2% from 3%. The key reason for this change in forecast is the erratic trend in monsoon rainfall. While some parts of the country have received below normal rainfall, a few states have received way above normal rainfall, resulting in floods damaging crops. This is also evident in the trend in area taken up for cultivation by the farmers. Food grain area taken under cultivation by farmers was only 0.4% higher than last year.

Source: Morgan Stanley Upgrades Indian Growth Forecast