India Ratings lowers growth forecast to 5.6%

Domestic ratings agency India Ratings today marginally revised down its economic growth estimate for 2014-15 fiscal to 5.6 percent citing poor industrial performance, and warned that the government will slip on the fiscal deficit front.

The agency pegged the final fiscal deficit print at 4.2 percent, against the budget promise of 4.1 percent, despite the 10 percent spending cut announced last week. In the first six months of the fiscal, fiscal deficit touched 83 percent of the target.

The agency, which is backed by international rating agency Fitch, revised down the GDP forecast to 5.6 percent from the earlier 5.7 percent in August.

"The downward revision in GDP forecast is mainly because we now expect the industrial sector growth to be 4.6 percent against the previous forecast of 5.1 percent," it said.

The agency maintained the agricultural growth projection at 1.3 percent, which experts say will be limited by the weak monsoon. However, it revised up the growth projection for the services sector, which contributes over 65 percent to GDP, by 10 bps to 7.1 percent.

The country has had two consecutive years of sub-5 percent growth, which jumped to 5.7 percent in the first quarter of the fiscal. However, due to a continued slump in the monthly industrial output data, analysts expect the upcoming September quarter growth at 5 percent levels.

The government is expecting the growth to come in 5.5-6 percent range, while the RBI's median estimate stands at 5.5 percent.

On the fiscal deficit, India Ratings said even though factors like declining oil subsidy on a fall in global crude prices are giving us succour, a slow growth in the tax revenues would likely result in the government over-shooting its 4.1 percent target and we will close FY15 with a 4.2 percent gap.

The agency said the recent move to deregulate diesel, which was caused largely by the decline in international crude prices, will help save Rs 15,000 crore in oil subsidy in FY15.

The agency said there is a low probability of RBI Governor Raghuram Rajan cutting the interest rates at the policy review on December 2, but will do so in February next.

It said the average consumer price inflation for the entire fiscal will come in at 7.8 per cent, as against the 9.5 percent in the year-ago period.