BNP Paribas cuts growth forecast to 5.7% for FY13

NEW DELHI: Global Financial Services firm BNP Paribas today cut India's economic growth forecast for the current fiscal to 5.7 per cent from 6.3 per cent estimated earlier, in view of deficient monsoon.

"Our FY2013 GDP forecast is cut to 5.7 per cent from 6.3 per cent estimated previously...This year's deficient monsoon will keep the growth-inflation trade-off under pressure for the next few quarters," BNP Paribas said in a report titled 'Indian Economics: Eyes on the Tiger'.

BNP Paribas also predicted that Indian economy's new normal growth will be around 7 per cent.

"Our long-held view that the Indian economy's new normal is 7 per cent growth and 7 per cent inflation on average is now the conventional wisdom and largely priced in," it said.

According to the Indian Meteorological Department data, the rainfall was expected to be deficient by 15 per cent for June-September 2012.

For now, the economy is wrestling with GDP growth at a 9-year low of close to 5 per cent and inflation close to 10 per cent, BNP Paribas said.

The Reserve Bank in its quarterly monetary policy last month had lowered the growth forecast for current fiscal to 6.5 per cent from 7.3 per cent.

The Financial Services firm also blamed loss of fiscal discipline as prime force behind the worse macro-outcomes of recent years.

"Rapid increases in spending, particularly subsidies, have pushed down national saving, crowded out private investment, weakened the balance of payments and exacerbated inflationary pressure," it said.

The Centre's fiscal deficit ballooned to 5.76 per cent of GDP in the last fiscal on account of high fuel subsidy outgo.

The government has not been able to decontrol diesel prices even after taking in-principle decision.

For the April-June period, the fiscal deficit rose to Rs 1.9 lakh crore, or 37.1 per cent of the 2012-13 target. The Centre hopes to bring down the deficit to 5.1 per cent of GDP in the current fiscal.