Crisil cuts India’s GDP growth forecast to 6.5%

Rating agency Crisil today lowered India's economic growth projection to 6.5 per cent for the current fiscal from an earlier forecast of 7 per cent in view of global economic concerns and muted domestic investment demand.

The forecast has been scaled down in view of rising downside risks from recession in the euro zone, muted domestic investment demand, a domestic policy logjam, and limited fiscal and monetary space to stimulate the economy, Crisil said in a statement.

"Unlike the swift V-Shaped recovery from 6.8 per cent growth in the worst phase of the global financial crisis in 2008-09, economic growth will remain flat in 2012-13, the level of 6.5 per cent achieved in 2011-12. This will make fiscal year 2012-13 the second consecutive year of lowest growth, in the past decade," said Crisil CEO Roopa Kudva.

According to the government estimate, GDP growth was estimated at 7.6 per cent.

In the Union Budget, finance minister Pranab Mukherjee projected GDP growth of 7.6 per cent with a range of (plus/minus 0.25 per cent) for the current financial year.

Industry growth is projected to improve to 5 per cent over a very weak base of 3.4 per cent growth in 2011-12, it said, adding services growth has been revised down to 8.1 per cent. Under the assumption of normal monsoons, agriculture is expected to grow at the trend rate of 3 per cent.

"Sub-normal monsoons and a further worsening of the situation in the euro zone can create downside risks to our tepid growth forecast of 2012-13, she said.

Crisil expects the fiscal deficit to settle at 5.8 per cent of GDP in 2012-13 versus its earlier estimate of 5.5 per cent and the Budget estimate of 5.1 per cent. With slower GDP growth, government revenue growth will be lower than previously anticipated, thereby pushing up the fiscal deficit. This will increase the government's borrowing requirement and push the yields higher than earlier projection, it said.

Besides, Crisil has raised rupee/dollar forecast to 50 from its earlier forecast of 48-49 by March 2013.

If the European situation improves towards the beginning of 2013, it said, portfolio inflows to Indian markets would increase due to improved risk appetite. The consequent improved supply of dollars would create an appreciation bias for the rupee.