Crisil Research cuts India's GDP forecasts to 5.5%

Updated: Tuesday, August 7, 2012, 13:22 [IST]

CRISIL Research has cut India's real GDP growth forecast for 2012-13 to 5.5 per cent from its earlier forecast of 6.5 per cent. The average WPI inflation forecast has been raised to 8.0 per cent from 7.0 per cent released earlier.

"The downward revision in India's growth forecast factors in the adverse impact of rainfall deficiency (an expected deficiency of 15 per cent 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)," Crisil has stated.

Despite slowing growth, CRISIL Research has revised up its average WPI inflation forecast for 2012-13 to 8.0 per cent to reflect the adverse impact of deficient monsoon on food inflation.

"We now expect the fiscal deficit to worsen to 6.2 percent of GDP in 2012-13 from our earlier estimate of 5.8 per cent. 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," the rating firm has stated.

The rupee is now expected to settle around 53 per US$ by March-2013 compared to our 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.

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