Here is what's pouring this drought season: GDP downgrades

Brokerage house CLSA has cut its forecast for Indian GDP growth to 5.5% for the current fiscal year ending March from its earlier projection of 6%, citing no growth in agriculture and allied services due to the poor monsoon conditions.

India's weather office earlier said that the south-west monsoon will be deficient by about 15%, indicating that a drought may be declared at the end of the season. It will be the country’s first drought in three years, though it is not a country-wide situation.

Farm sector accounts for about 14% of GDP, suggesting that its statistical impact on GDP growth may not be significant, but it has disproportionately large impact on people because nearly 50% depend on the sector for their livelihood.

The RBI, on July 31, reduced the GDP forecast for the current financial year from 7.3% to 6.5% and hiked the inflation forecast from 6.5% to 7%.

Joining the bandwagon, Citi also cut its India GDP forecast to 5.4% from earlier 6.2%, adding that the growth could fall to 4.9% if the drought worsens. It sees average inflation at 8% due to pressure on food prices.  

"We have lowered our rate cut call to 50 basis points now versus the upto 75 basis points earlier," a Citi analyst. However, the sharper fall in imports to improve the current account deficit to USD 55 billion.    

Earlier, rating agency Crisil had cut India's growth forecast to 5.5% for financial year 2012-13 from 6.5% earlier, also citing a weak monsoon and likely worsening of government finances. It has also revised downwards the March forecast for the rupee to 53 from its earlier 50.

"Given the worsening of the eurozone economy as well as domestic growth slowdown, we now expect the Indian economy to attract lower foreign capital inflows compared to our earlier estimate," it said.