CRISIL cuts India growth forecast

With the adverse effect of deficient rainfall and deterioration in the Euro zone outlook looming, CRISIL, the rating agency, has cut its estimate for India’s economic growth in 2012-13 to 5.5 per cent, from its earlier 6.5 per cent.

This is its second downward revision for the FY13 estimate. In June, CRISIL Research had scaled down its estimate for Gross Domestic Product (GDP) growth to 6.5 per cent from an earlier one of seven per cent.

Its latest note says it has factored in the adverse impact of rainfall deficiency. The India Meteorological Department has estimated a rain deficiency of 15 per cent for June-September. Also, the economic environment in Europe hasn’t improved. In fact, Standard and Poor’s says the Euro zone economy might contract.

Earlier, it had said gropwth would be zero; now, it says there might be a negative 0.6 per cent.

A slowing in domestic economic growth would strain government finances. The fiscal deficit might worsen to 6.2 per cent of GDP in 2012-13 from the previous estimate of 5.8 per cent, says CRISIL. “The increase in the fiscal deficit to GDP ratio largely reflects lower revenue growth, as a result of slowing GDP growth. In case of a substantial fiscal stimulus to the economy, the fiscal deficit to GDP ratio could worsen,” it said.

The revised growth forecast assumes the stretched fiscal situation will limit the ability of the government to give a generous stimulus to the economy. If it does so, then growth will go up but so will the deficit. Similarly, high inflation will tie the hands of the Reserve Bank of India in aggressively cutting rates to stimulate the economy.

Pointing to pain from rising prices, it raised the estimate for Wholesale Price Index-based inflation to eight per cent from the earlier seven per cent. Again, reflecting the adverse impact of a deficient monsoon on growth.