Govt pares FY16 growth forecast to 7-7.5% from 8.1-8.5% earlier

The government on Friday lowered its growth forecast for the fiscal year ending in March 2016 to 7-7.5 percent from 8.1-8.5 percent estimated in February. The revision came after Asia’s third-largest economy grew 7.2 percent in the first half of the 2015/16 fiscal year. [caption id=“attachment_2550694” align=“alignleft” width=“380”]  Reuters[/caption] In its mid-year economic review presented in parliament, the finance ministry said the economy has made considerable progress, yet challenges remain. Further, the report also reiterated it would meet its fiscal deficit target of 3.9 percent and revenue deficit target of 2.8 percent for this year. But in a statement that may raise some economists’ eyebrows, it said there may be a need to reconsider next year’s fiscal deficit target (3.5 percent). Speaking during the mid-year economic review, Arvind Subramanian, chief economic advisor, said, “Economy has made considerable progress but challenges remain. The government aims to meet fiscal deficit target of 3.9% withough big expenditure cuts,” adding that capital expenditure has gone up by 0.5%. He also said the economy is well cushioned to deal with any volatility owing to Fed rate hike. The government’s decision to lower the growth forecast today came after the Reserve Bank of India (RBI) in September had already trimmed its growth projection to 7.4 percent from its earlier expectations of 7.6 percent. “Overall, lead/coincident indicators, the forward looking surveys and estimates from model-based forecasts warrant a downward revision of Gross Value Added (GVA) growth to 7.4 per cent in FY16 from the projection given in the April Monetary Policy Report (MPR),” RBI had said in its Monetary Policy Report. In October, the International Monetary Fund (IMF) also lowered India’s growth forecast to 7.3 percent for the current fiscal from 7.5 percent predicted in July. In the same month, India Ratings scaled down its GDP growth forecast for this fiscal by 20 basis points to 7.5 percent, citing lower agriculture output due to deficient rainfall. The rating agency had earlier forecast a GDP growth of 7.7 percent. “The downward revision in forecast is primarily due to the lower agricultural growth following the deficient rainfall in many parts of the country,” a PTI report said quoting India Ratings chief economist DK Pant. Also, global rating agency Fitch in July had pared the country’s growth forecast for the current fiscal to 7.8 percent from 8 percent predicted earlier. “Capital expenditure has not yet picked up, rural and export demand is weak, and the translation of the monetary policy loosening into lower bank lending rates is limited,” the agency said in a report. “Downside risks to growth relate, for instance, to below-average rainfall during this year’s monsoon season, although the first three weeks of June recorded 16% above-average rainfall,” Fitch said in its report. With inputs from agencies