ICRA cuts GDP growth target at 5.4% for FY13

Agency cites lacklustre investment demand, slowing consumption for lower estimate, pegs fiscal deficit at 5.6% of GDP

With the moderation in consumption demand and absence of pick up in private investment, rating agency ICRA today cut the estimate for India’s economic growth for FY13 to 5.4 per cent from 5.7 per cent.

There is no uptick in pickup in private investment activity despite an improvement in sentiments. There is low transmission of the reduction in the cash reserve ratio (CRR) since September 2012. Also there are expectations of back-ended cut in the repo rate (reduction of 50 bps in Q4FY13), rating agency said note.

The pace of growth of real Gross Domestic Product (GDP) at factor cost is likely to have eased to 5 per cent in) Q2FY13 (July-September 2012) from 5.5% in Q1FY13.

Macroeconomic fundamentals remain clouded despite the lower-than-expected shortfall in monsoon rainfall; recent easing of headline inflation; and reform measures announced by Government of India (GoI) in the past two months.

GoI’s fiscal deficit is expected to exceed the revised target of 5.3% of GDP in the current fiscal year. This was partly due to substantial under-recoveries on various regulated fuels already incurred in H1FY13 and limited flexibility to control various types of expenditure. Also, there is the likelihood of both tax and non-tax revenue receipts falling short of the budgeted amount, ICRA said.

Assuming that the fuel subsidies for Q4FY13 may released in FY14 and government raises Rs 20,000-25,000 crore through disinvestment, GoI’s fiscal deficit is may be around 5.6-5.7 per cent of GDP in 2012-13, inferior to the revised target of 5.3 per cent of GDP.

Referring to price trends, ICRA said a weak rupee and a generalisation of inflationary pressures related to high food prices would result in core inflation remaining firm. The Wholesale Price Index is expected to average 7.5-7.7 per cent in FY13.

Though measures such as the revision in the price of diesel and easing of norms for Foreign Direct Investment (FDI) in various sectors initiated since September 2012 boosted investor sentiments and aided in a strengthening of the rupee, the currency has weakened sharply in the past month, adding to macroeconomic uncertainties.