Where is the Indian Economy Headed? Is India's economy bottoming out, or getting worse? It depends who you ask. On Thursday HSBC cut its growth forecast for India for the current fiscal year, which ends March 31, to 5.2 percent, from a previous forecast of 5.7 percent. On Tuesday, Fitch Ratings restated a "negative" outlook on India's sovereign credit rating, warning that a possible downgrade could come in the next 12 to 24 months. But other analysts, including Moody's Investors Service, Anand Rathi Financial Services and Angel Broking, said recently that India's economy is on the path to improvement. The uncertainty seems to stem from the sheer number of problems the country is grappling with, and the ruling Congress Party government's inability to grapple effectively with inflation, the fiscal deficit, slowing growth and a weak balance of payments. Just a few years ago, India was considered one of the world's fast-growing new economic powerhouses, and there were strong expectations that the economy could grow 10 percent a year. But in October, the International Monetary Fund cut its prediction for real economic growth in India in 2012 to 4.9 percent, the lowest in a decade. On Thursday, HSBC said that a structural slowdown in the economy was the reason behind a lowered growth forecast. The bank also cut expectations for the next fiscal year from 6.9 percent to 6.2 percent. "Looking ahead, we expect non-agricultural GDP growth to move more or less sideways in the near term, and only recover very gradually thereafter as key structural reforms are slowly rolled out," the report said. Fitch said Tuesday that a combination of widening fiscal deficits, slowing growth and persistently high inflation put the country's sovereign credit rating at risk. "Our key concerns revolve around the fiscal situation in the country and any material decline in India's potential growth rate," Art Woo, director of Asia Sovereign Ratings at Fitch Ratings, said in a telephone interview. "If there is an acceleration in reforms, that would improve India's fiscal condition and would be cause for a positive outlook on ratings," he said, although these moves might prove politically unpalatable and difficult to carry out. India's current account deficit, a measure of the difference between the value of exports and imports, hit a record high of 5.4 percent of the gross domestic product (GDP) in the July-September quarter, according to data released by the Reserve Bank of India in December. While Finance Minister P. Chidambaram announced measures in October to cap the fiscal deficit for this financial year at 5.3 percent of GDP, some analysts are skeptical. "In my opinion India will most likely miss its fiscal deficit target of 5.3 percent of gross domestic production - which has already overshot a previous target of 5.1 percent," Mr. Woo said. Under pressure to spur the economy, the Indian government has introduced a series of economic reforms since mid-September, including raising the price of fertilizer and diesel, further opening the retail sector to foreign investment, and allowing foreign investment in the insurance, pensions and aviation sectors. Not surprisingly, India's finance ministry remains confident about the country's economic future. We are not worried. We have been saying we are on right track," Arvind Mayaram, Secretary at the Department of Economic Affairs at the Finance Ministry, said in an interview with the Press Trust of India on Tuesday, after the Fitch assessment became public. Fitch views these measures as a "step in the right direction," but no guarantee for improved economic performance. "While opening up foreign direct investment and other measures taken by the government in the insurance, pension and aviation sectors are a positive development, there is still much uncertainty," Mr. Woo said. Analysts from HSBC said the reforms will take some time to show marked results. They predict it will be another three years before growth returns to 8 percent on a sustained basis. Others remain cautiously optimistic about India's economic future. "The Fitch ratings outlook is more backward-looking than forward looking," said Sujan Hajra, chief economist and executive director of institutional equity at AnandRathi Financial Services. "In our opinion economic growth, inflation and the fiscal situation have all bottomed out and will show a gradual improvement in the coming two quarters," he said. "There have been significant reform measures undertaken and these will begin to show results soon," Mr. Hajra said. Reform measures taken by the government since September 2012 are a good start, said Vaibhav Agrawal, vice president of research banking at Angel Broking. "They have been taking actions consistent with their announced intentions - so it's not all talk," he said. In November, Moody's said that its outlook for India was stable and it maintained a "Baa3" rating, which is described as a "medium-grade rating with moderate credit risk." The ratings agency cited India's high saving and investment rates, relatively competitive private sector and diverse economy as rationale behind its decision. However, the report said, "The rating is constrained by the credit challenges posed by India's poor social and physical infrastructure, low per capita income, high government deficit and debt ratios, a complex regulatory environment, and a tendency towards inflation." Analysts and rating agencies are both looking ahead with some trepidation at the fiscal 2013 - 2014 budget, which will be announced before the end of March. Because it is the last budget to be announced by the current government before the 2014 general election, many fear that the central government will resort to populist but costly measures, threatening the country's fiscal and economic health. "The government has to take some tough decisions in the coming budget on politically sensitive issues such as oil prices," said Nimish Shah, managing director at Fortune Financial Services. The need of the hour is a largely reformist budget that reigns in expenditure.