India trims economic expansion forecast

Dubai: In one of the most pessimistic outlooks so far on India's economic growth, the Central Statistical Organisation, the official statistical agency of the Indian government, has projected 6.9 per cent growth for this fiscal year.

The latest forecast is lower than projections by various international and Indian organisations including the World Bank and the Reserve Bank of India (RBI), the country's central bank.

The new forecast marks a significant decline from 2010's 8.5 per cent growth in gross domestic product. While on the one side the Eurozone crisis and significantly lower foreign capital inflows impacted the country's growth prospects, the RBI's tight money policy curtailed credit flow into the economy which reflected in sharp decline in industrial production. The Bombay Stock Exchange's benchmark index yesterday snapped its five-day rally and fell 85 points to 17,622.45 on profit booking amid low growth projection for this fiscal year — which is from April to March — and a weak trend in global markets as the Eurozone debt crisis continued to worry investors.

Dim hope

Analysts see dim hope for a quick turnaround. Although the RBI is widely expected to begin cutting interest rates after an aggressive 18-month tightening cycle, domestic growth still looks shaky. Additionally, with the inflation remaining in high single digits, scope for easing interest rates is limited. "We are not expecting any sudden reversal in economic growth. Global growth remains weak. Things on the domestic front have not improved either," said Indranil Pan, chief economist at Kotak Mahindra Bank who expects the economy to grow 6.7 per cent this fiscal year and 6.6 per cent the following year.

The RBI last month cut the current fiscal year growth forecast to 7 per cent from 7.6 per cent and warned of rising risks to economic growth. RBI Governor Duvvuri Subbarao sounded optimistic yesterday and said he expected GDP growth to be closer to 7 per cent. "When we revise it, it could be higher," he told the convocation function at the Indira Gandhi Institute of Development research yesterday.

Capital inflows

He said that India could see higher capital inflows in the first three months of 2012. Since last month, foreign institutional investors have injected close to $6 billion (Dh22.02 billion) in debt and equity markets. The governor also said industrial production could pick up in the first half of 2012. A sharp slowdown in agriculture has come as a surprise to many. The government projections are showing a sizeable decline in agricultural output.

"The agriculture [growth] number of 2.5 per cent versus 7 per cent is a surprise considering two good harvests. The country was expecting a sizeable leap in food grains production," said Brinda Jagirdar, general manager, economic research department at the State Bank of India.