Govt braces for likely lower growth forecast ahead of polls

Slower recovery in industries will prompt govt to cut the estimate below 5%

Government on Friday is likely to cut its estimate of 5% growth forecast for the fiscal year that ends on March 31, thanks to a slower-than-expected recovery by industries.

The revision will do little to help the Congress party-led ruling alliance, which faces an uphill battle in elections due by May amid allegations of economic mismanagement, corruption scams and high inflation.

Last week, the Statistics Ministry revised down economic growth for the previous fiscal year to 4.5% - the slowest pace during the decade Manmohan Singh has been prime minister - from an earlier estimate of 5%.

The revised GDP data for 2013/14 fiscal year, ending March 31, will be released on Friday at around 5.30 pm. (1200 GMT).

Finance Minister P Chidambaram is widely expected to announce measures including a cut in factory gate duties on some products to push up manufacturing output when he presents an interim budget for the coming fiscal year in parliament on February 17.

The full-year budget will, however, be presented by the next finance minister after the elections.

Asia's third-largest economy grew at 4.6% annually in the first half of the current fiscal year, down from 5.3% in the corresponding period a year ago. Growth slowed in almost all sectors, including services such as tourism, transport and telecoms.

The hike in interest rates by the Reserve Bank of India to rein in near-double digit retail inflation - three times since Raghuram Rajan took charge in September - has also dampened chances of early economic recovery.

"Notwithstanding a favourable monsoon in 2013 and healthy agricultural performance, the pickup in rural demand has been uneven and weaker than expected," said Aditi Nayar, an economist at ICRA, the Indian arm of rating agency Moody's.

India's economy grew at more than 9% annually for three straight years during the 2005/06 to 2007/08 period, before being hit by the global financial crisis and high interest rates amid a slower global recovery.

SLOWING DEMAND

This year, the government has cleared hundreds of much-delayed projects such as power plants, mines and ports, but the impact is expected to be visible only in next year's growth numbers, due to a time lag in actual investments.

Last week, the Reserve Bank of India in its quarterly review said the weakening of private consumption and investment demand had dampened prospects of a second-half pick-up in GDP growth.

Consumption, which contributes around 70% to the near $1.8-trillion economy, is expected to grow 4.5% in fiscal 2013/14, down from 5.2% in the previous year, a Citi group research note said on Thursday.

Durable goods makers such as washing machines, refrigerators and electronic items face a bad year, as output of these goods contracted 12.6% during the period from April to November.

Annual car sales declined by about 5% in the first three quarters, hit by high inflation, fuel prices and interest rates.

"Factoring in a pickup in agricultural growth to 5.0% in the later half of this fiscal, ICRA expects Indian GDP growth in FY14 to come in towards the lower end of our forecast band of 4.7% to 4.9% in 2013/14," Nayar said.