Crisil lowers current fiscal growth forecast to 6%

Ratings agency Crisil today cut its FY14 growth forecast for India to 6% from the earlier 6.4% citing a variety of reasons, including the high lending rates, weaker pick-up in consumption and issues around mining and project clearances.

"We have cut the GDP growth forecast for FY14 to six from 6.4% expected earlier," Crisil Research said in a note issued here.

In the Budget, Finance Minister P Chidambaram had said the government was targeting a growth of 6.1-6.7% for the current fiscal.

Crisil said a weaker-than-expected pick-up in household consumption being witnessed at present could begin to act as a drag on manufacturing.

The rating agency has cited "downward rigidity", wherein the repo rate cuts by the Reserve Bank are not getting passed in lending rates, as among the factors for the downward revision.

"Although we continue to believe that growth in FY14 will be greater than last year's 5%, the recovery is fragile and hinges critically on a normal monsoon," the report said.

Issues around policy-making, especially in mining and the "lack of speedy project clearances, which continue to hurt manufacturing, infrastructure and investment activity" also topped Crisil's list of factors that it felt will hurt growth.

Additionally, the lowering of the European GDP forecast to -0.5% from the earlier -0.1% by some estimates may have an adverse impact on the domestic growth, the report said.

Economic growth in FY13 is expected to come down to a decade low of 5%, according to estimates.

International rating agencies like Standard & Poor's (Crisil's parent company) and Fitch had last year threatened to downgrade the country's rating to junk on lower growth, troubles on the policy front and the high fiscal deficit and current account deficit. The CAD had hit a historic high of 6.7% in the third quarter of last fiscal.

Crisil said it expects the fiscal deficit during FY14 to be at 5.1% against the budget estimate of 4.8% saying government will not be able meet the 19% growth target in tax collections due to lower growth.

However, it said CAD, which is slated to breach record highs in FY13, could go down to 4.5% in the current fiscal, which would still be higher than the comfort level.

"Lower crude and metal prices are expected to trim the CAD to 4.5% of GDP in FY14," it said, adding for the rupee to be stable, the country will have to attract $90-95 billion of inflows which is a manageable task.

On the exchange rate front, the report said the rupee will maintain the current levels of around 54 to a dollar by the end of the fiscal.

Inflation, which cooled to a record 39 month low in March at 5.96%, will be at 6.3% by March 2014, Crisil said, adding it is lowering its estimate from 6.5% on this front.