Icra downgrades India growth projection to 7.3-7.5% for FY12

Mumbai: Ratings firm Icra today revised downward its growth projection for the Indian economy to 7.3-7.5 percent for this fiscal on the back of dampening business sentiment and sluggish industrial growth.

“In light of the dampening business sentiments, sluggish domestic industrial growth in, intensifying macroeconomic headwinds and the likelihood of lower monthly merchandise exports in second half of FY'12, ICRA has revised its forecast for the pace of GDP growth in FY-12 to 7.3-7.5 percent from the earlier expectations of a 7.5-7.7 percent,” the firm said in the latest report.

[caption id=“attachment_142641” align=“alignleft” width=“380” caption=“GDP grew at 7.7 percent during the first quarter of the current fiscal, the lowest in 18 months. Reuters”]  [/caption]

This is the lowest projection so far as the forecasts from the government, the Reserve Bank, CMIE and Crisil stand above or at 7.6 percent. The Indian economy had expanded by 8.5 percent in the last fiscal (2010-11).

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Icra said the GDP growth in the second quarter (July-September) is likely to be a modest 7 percent because of easing of manufacturing growth, contraction in mining and quarrying output and moderation in the services sector. The Q2 growth data is scheduled for release on 30 November.

GDP grew at 7.7 percent during the first quarter of the current fiscal, the lowest in 18 months.

Industrial output also showed signs of slowdown with growth in factory output rising by a meagre 1.9 percent in September, which was the lowest monthly rate of expansion in two years.

Experts have blamed the high interest rate regime, which has increased the cost of borrowing, for hindering fresh investments and leading to a fall in industrial output.

RBI has hiked its lending rates 13 times, totalling 350 basis points, since March 2010, to curb inflation.

Headline inflation has been above the 9 percent mark since December last year and stood at 9.73 percent in October this year.

The government and RBI have conceded that the high interest rate regime is hurting growth but reiterated that inflation control in the biggest priority.

Icra said it expects inflation to moderate to around 7 percent by March 2012, in line with RBI’s projections.

“Icra expects headline inflation related to the Wholesale Price Index (WPI) is likely to have peaked and would decline to around 7 per cent by March 2012, unless commodity prices increase sharply in the coming months,” it added.

The ratings firm, however, warned that any further depreciation of the Indian rupee beyond current levels would exacerbate inflationary pressures.

PTI