CMIE lowers FY12 GDP growth projections to 8.1%

The Centre for Monitoring Indian Economy (CMIE) has revised its GDP forecast for 2011-12 downwards from 8.6% to 8.1%.

The forecasts for all major sectors have been scaled down. The reason for the scaling down of the forecasts differ from sector to sector. None of the major sectors have seen an upward revision in their forecasts, CMIE said in its monthly review here.

The agricultural sector is expected to grow by 2.2% in FY12. This forecast is lower than our earlier forecast of 3.2% growth, it said.

Largely, the downward revision reflects on expectations of a lower output of groundnut and cotton because of poor rains in Gujarat and also Andhra Pradesh.

One of the reasons the agricultural growth rates of the current fiscal have been scaled down is that the fourth final estimates of major crops indicate some exceptional growth rates in 2010-11.

The forecast for the industrial sector has been scaled down from 8.9% to 8.6%. The production forecast for power generation, steel, edible oils, and cars have been scaled down because of a variety of reasons.

A lower growth in production of agriculture and industry is expected to adversely impact the growth in the services sector, CMIE said.

Several senior government official have admitted that the 9% growth assumed in the Union Budget is unlikely to be achieved. The Finance Minister also stated that the economy is likely to grow by around 8%.

This was the lowest forecast from the government. And, it came after the forecast of the Prime Minister's Economic Advisory (PMEAC) that sounded a bit more negative than expected as it reduced its forecast from 9% to 8.2%.

The Reserve Bank of India had scaled down its forecast to 8% in May 2011. The central bank's current stance seems to be to bring down inflation even if it comes at the cost of some growth.

Several private agencies-mostly from the financial broking arms of multinational investment companies have scaled down their forecast to less than 8%. Morgan Stanley is at the lower end of the spectrum at 7.2%, CMIE said.