Crisil cuts India GDP forecast for FY12 to 7.6%

Ratings agency Crisil today lowered its projection of India's economic growth in the 2011-12 financial year to 7.6% from its earlier estimate of 8% on account of the deteriorating domestic investment climate and global economic uncertainty.

"The forecast has been scaled down in view of the deteriorating global economic scenario and the grim investment climate in India on account of the policy environment," Crisil said in a statement.

The forecast for the Indian economy is based on the assumption that developed economies will witness a slowdown, but another recession will be averted, it said.

In May, Crisil had projected the economic growth rate of the country in FY12 at 7.7-8.0%.

During the first quarter of the current fiscal, the Indian economy grew by 7.7%.

"While we had anticipated the impact of rising interest rates and slowing government expenditure, the deceleration in advanced countries has been sharper than expected. This, in conjunction with the weak investment climate, is impacting India's GDP growth prospects. We now project the Indian economy to grow at 7.6% in 2011-12," said Crisil MD Roopa Kudva.

The industry is projected to grow at a slower rate of 6.5% in 2011-12, as against the previous forecast of 7.3%.

Besides the adverse impact of interest rate hikes, regulatory hurdles in the mining sector (an important source of raw material) are likely to hamper industrial activities.

The slowdown in the industrial sector is expected to spill over to services and will affect sectors such as trade, hotels and investment-led services like banking, she said.

"Overall, we now expect services to grow at 9.2% this year as compared to our previous estimation of 9.4%. Normal monsoons and good sowing, however, have led us to upwardly revise the agricultural GDP forecast for 2011-12 to 3.2% from 2.7%," she added.

In addition, Crisil's WPI inflation forecast for 2011-12 has been revised upward to 9.1% from the earlier projection of 8.0-8.5%.

"Inflation in the first five months of the current fiscal, at 9.6%, has surged past our earlier expectations," Kudva said.

In addition, Crisil said the recent rupee depreciation will limit the positive impact of a decline in commodity and oil prices.