Crisil cuts India's real GDP growth forecast for 2012-13 to 5.5% from 6.5%

MUMBAI: CRISIL has cut India's real GDP growth forecast for 2012-13 to 5.5% from its June estimate of 6.5%.

"The forecast has been scaled down, in view of deficient rainfall and deterioration in the Eurozone growth outlook. The forecasts for other macroeconomic parameters have also been revised," CRISIL said in a statement.

However, the average Wholesale Price Index ( WPI) inflation forecast has been raised to 8% from 7% released earlier to reflect the adverse impact of deficient monsoon on food inflation.

"The downward revision in India's growth forecast factors in the adverse impact of rainfall deficiency (an expected deficiency of 15% for June-September 2012, as per Indian Meteorological Department) and worsening of the Euro zone growth outlook (a revision in 2012 growth forecast to -0.6 per cent by Standard & Poor's relative to the earlier forecast of 'zero' per cent)," the leading independent research house stated.

It also expects the fiscal deficit to worsen to 6.2% of GDP in 2012-13 from the earlier estimate of 5.8%. "The increase in the fiscal deficit to GDP ratio 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," Crisil stated.

The rupee is now expected to settle around 53 per US$ by March-2013 compared to the earlier forecast of 50 per US$. "Given the worsening of the Euro zone economy as well as domestic growth slowdown, we now expect the Indian economy to attract lower foreign capital inflows compared to our earlier estimate," said Crisil Research.

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.

"If it does so, then growth will go up but so will fiscal deficit. Similarly high inflation will tie the hands of the Reserve Bank of India (RBI) in aggressively cutting rates to stimulate the economy," Crisil Research added.