CRISIL Research slashed its forecast for India’s GDP growth in the current fiscal to 5.5 per cent (from 6.5 per cent earlier) on Tuesday, owing to major factors like deficient monsoon and worsening of Euro zone crisis.
The rating agency also expects lower foreign capital flows this financial year, and as such, lowered its target for the rupee to 53 per US dollar, from 50 earlier.
The agency report said the downward revision in India’s growth forecast factors in the adverse impact of rainfall deficiency and worsening of the Euro zone growth outlook.
Despite slowing growth, CRISIL revised up its average WPI (weighted price index) inflation forecast for 2012-13 to 8.0 per cent to reflect the adverse impact of deficient monsoon on food inflation. “We now expect the fiscal deficit to worsen to 6.2 per cent of GDP in 2012-13 from our earlier estimate of 5.8 per cent.”
The revised growth forecast assumes that the stretched fiscal situation will limit the ability of the government to give a generous stimulus to the economy, it added. If it does so, the growth will go up but so will fiscal deficit.
Similarly, high inflation will limit RBI in aggressively cutting rates to stimulate the economy. However, swift policy action to solve issues of mining, land acquisition and speedy clearance of projects can improve the growth projection.
The increase in ratio of fiscal deficit to GDP largely reflects lower revenue growth as a result of slowing GDP growth. In case of a substantial fiscal stimulus to the economy, the fiscal deficit to GDP ratio could worsen further.