ADB cuts India growth forecast for 2012-13
Cites continued weaknesses in output, consumption & investment as reasons for 5.4% projection
On Friday, the Asian Development Bank (ADB) cut its projection for India’s economic growth for the current financial year —the third occasion it has done so this year — to 5.4 per cent from the 5.6 per cent estimated earlier. A weaker than expected growth rate of 5.3 per cent in the second quarter, among other factors, prompted the Manila-based institution to do so.
“India’s economy continued to show weakness. Anaemic industrial production, as well as consumption and investment, point to sluggish growth in the coming quarters,” it said in its Supplement to the Asian Development Outlook (ADO) 2012 released on Friday.
Both the 5.6 per cent and 5.4 per cent growth rates would be the lowest for India in a decade.
| UPS & DOWNS Latest GDP growth estimates for ‘12-13 (%) | |
| ADB | 5.40 |
| S&P | 5.50 |
| RBI | 5.80 |
| Fitch | 5.50 |
| Moody’s Analytics | 5.50 |
| Morgan Stanley | 5.80 |
| CRISIL | 5.50 |
| CLSA | 5.50 |
| Citi | 5.40 |
| PMEAC | 6.70 |
| Q1 GDP | 5.50 |
| Budget 2012-13* | 7.60 |
| *Ministry of Finance | |
ADB also cut its growth projection for 2013 to 6.6 per cent from the earlier 6.7 per cent. It felt a high fiscal deficit, inflation and slow capital flows would make it difficult for the Reserve Bank of India (RBI) to cut rates. Projections for China’s growth rate, on the other hand, were retained at 7.7 per cent in 2012 and 8.1 per cent in 2013.
India’s economy grew 5.4 per cent in the first half of the current financial year. So, ADB is basically not sensing any improvement in the second half. If this proves correct, the hopes of Indian authorities would be belied, as they are expecting a gradual recovery in the second six months of 2012-13.
In the ADO issued in April, the ADB had projected India to grow at seven per cent this year. It lowered this to 6.5 per cent in July and then to 5.6 per cent in the October update, citing falling global demand and the impact of a delayed monsoon on agricultural production.
The report said monetary policies adopted to combat domestic inflation continue to pressurise South Asian economies.
In India, RBI has persistently refused to cut the repo rate (at which it lends to banks), on the ground of inflation risks. RBI is slated to issue a monetary policy review later this month.
“Moreover, the late and uneven monsoon will hurt agricultural production in India and Nepal,” said ADB. Agriculture and allied sectors grew just 1.2 per cent in the second quarter of this financial year, against 3.1 in the corresponding period last year.
The report said recent economic data suggest the economy remains sluggish. The Index of Industrial Production fell 0.4 per cent in September, after expanding a modest 2.3 per cent in August.
“The September IIP contraction was below market expectations, driven by a decline in manufacturing,” said the bank. ADB further said the July-September national accounts validate this weakness.
“GDP growth dipped to 5.3 per cent in the second quarter of 2012-13 from 6.7 per cent in the same quarter during the previous fiscal year, mainly due to poor output in the farm and manufacturing sectors.”