CRISIL cuts FY2014 GDP growth forecast to 6%

CRISIL has reduced its GDP growth forecast for India for FY2014 to 6.0% from 6.4% expected earlier. Agriculture GDP growth forecast is retained at 3.5%, but industry and services GDP growth forecasts are lowered to 4.4% and 7.3%, respectively. The reasons for the downward revision in GDP growth are as follows:

* Weaker-than-anticipated pick-up in household consumption demand, which will act as a drag on manufacturing sector recovery.

* Downward rigidity in lending rates, with the pass-through of any repo rate cuts expected to begin only in the second quarter of 2013-14.

* Lowering of the Euro zone GDP growth forecast for 2013 to -0.5% from -0.1% earlier (Standard & Poor's, March 2013)

* Issues related to mining and lack of speedy project clearances, which continue to hurt manufacturing, infrastructure and investment activity.

As per the CRISIL, the recovery is fragile and hinges critically on a normal monsoon. If the monsoons were to fail this year, resulting in no growth in agriculture, then GDP may grow by only around 5.1%. Economic recovery beyond FY2014 depends on revival of private corporate investment.

Other projections

Current account deficit (CAD): CAD for FY2014 is now expected at 4.5% of GDP. CAD is expected to average 5.1% of GDP in FY2013. Lower crude and metal prices are expected to trim the CAD to 4.5% of GDP in FY2014. CAD will, thus, be continue to be higher than the comfort level of policy makers and will keep the external account vulnerable in FY2014.

WPI inflation: Average WPI inflation forecast for FY2014 is lowered to 6.3% compared to 6.5% earlier.

Fiscal deficit: Fiscal deficit is expected to be 5.1% of GDP in FY2014 slightly higher than earlier estimate of 5.0% and budget estimate of 4.8%.

G-sec yields: The yield on the 10-year benchmark G-sec is expected to settle around 7.7-7.8% by March-end 2014.

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