| | |
Crisil Research, the domestic arm of global rating agency S&P, on Monday cut its India GDP growth forecast for 2013-14 to 6 percent from 6.4 percent expected earlier.
Crisil Research, the domestic arm of global rating agency S&P, on Monday cut its India GDP growth forecast for 2013-14 to 6 percent from 6.4 percent expected earlier. The reduction primarily came on account of growth moderation in industry and services sectors.
Those sectors are now expected to expand at a slower pace of 4.4% and 7.3% respectively as against 5.1 and 7.7% earlier.
"Although, we continue to believe that GDP growth in 2013-14 will be greater than last year's 5 percent, the recovery is fragile and hinges critically on a normal monsoon," the Crisil report said.
"If the monsoons were to fail this year, resulting in no growth in agriculture, then GDP may grow by only around 5.1 per cent. Economic recovery beyond 2013-14 depends on revival of private corporate investment."
This downward revision came at a time when the domestic whole sale price (WPI) based inflation hit 40-month low at 5.96 percent in March, 2013; falling below the market expectation at 6.4 percent.
Crisil provides the following reasons behind the revision:
▪ Weaker-than-anticipated pick-up in household consumption demand, which will act as a drag on manufacturing recovery.
▪ Downward rigidity in lending rates with the pass-through of any repo rate cuts expected to begin only in the second quarter of 2013-14.
▪ Lowering of the Euro zone GDP growth forecast for 2013 to -0.5 per cent from - 0.1 per cent earlier (Standard & Poor's, March 2013)
▪ Issues related to mining and lack of speedy project clearances, which continue to hurt manufacturing, infrastructure and investment activity.
The Reserve Bank of India, according to market experts, will have a few more triggers to cut the policy (repo) rate at which banks borrow money from the central bank. Currently, it stands at 7.50%.
While a softer rate of inflation will comfort the RBI, a slower rate of growth will prompt it to take some monetary easing measures to spur growth. However, higher current account deficit (CAD) or total savings minus investment still acts as a major deterrent for RBI to reduce rate. In October-December quarter, CAD hit record high at 6.40%.
Crisil's macroeconomic outlook at a glance:
ADS BY GOOGLE
video of the day
Budget 2015-16: Revive capex through savings on cheap crude says Kotak Sec