ADB cuts India's GDP growth forecast for fiscal to 7.4 percent

The Asian Development Bank (ADB) on Tuesday lowered India's growth projections for the current fiscal to 7.4 percent, from the 7.8 percent earlier, basing its estimates on weak monsoons, poor external demand and government's failure to carry forward reforms legislation in parliament.

"Weak monsoon, flagging external demand, and stalled parliamentary action on structural reforms, including a revamped domestic tax system and eased restrictions on land acquisition and labour, are expected to slow the economy," the ADB said of India in its latest Asian Development Outlook (ADO).

"Forecasts in ADO 2015 are revised down by 0.4 percentage points to 7.4 percent in 2015-16. Growth is expected to pick up to 7.8 percent in 2016-17 as key elements of the government's economic reform package reach fruition," it said.

In March, the ADB had forecast for India a growth rate of 7.8 percent this fiscal, and of 8.2 percent for 2016-17.

Also, GDP growth in the first quarter decelerated "as external demand weakened and investors hesitated awaiting further action on structural reform", ADB said.

Data late last month showed the Indian economy logged 7 percent growth in the first quarter of the this fiscal, showing signs of slowing vis-a-vis the 7.5 percent expansion in the quarter before.

The ADB report said the slowdown in GDP growth in the first quarter was on the back of a slide in growth of consumption, manufacturing and services, and significant contraction in exports due to lower oil prices and lacklustre demand.

Last month, US credit ratings agency Moody's also lowered India's growth forecast for this year by 50 basis points to 7 percent, citing fears over deficient rains this season and gradual progress of reforms.

ADB forecast inflation to average 5 percent for the current fiscal, while rising to 5.5 percent for the next.

"Continued soft consumer prices will give the central bank scope for further reduction in interest rates in the second half of FY2015," it said.

The report also said that because of slowdown in India as well in China, the growth forecasts for GDP in the region has been revised down to 5.8 percent in 2015 and 6 percent in 2016, from the March estimate of 6.3 percent for both years.