Global finance major BNP Paribas has revised downward its growth forecast for the Indian economy to 6.5 per cent for 2011-12, citing sliding capital expenditure and the country’s exposure to European banks.
It had earlier projected the growth at over 7 per cent.
“Our FY-12 GDP forecast is cut to 6.5 per cent with FY-13’s 7.1 per cent expectation underlining that the economy will not quickly regaining its prior dynamism thanks to sliding capex spending,” BNP Paribas said in the latest issue of ’India Economics: Eye on the Tiger’
“India’s relatively high exposure to European bank deleveraging leaves the risks to even these downbeat forecasts still skewed to the downside,” it added.
BNP also said the Indian rupee is highly exposed to accelerated, and potentially disorderly, de-leveraging by European banks and over the next 3—6 months the risk is clearly for further weakness which may worsen growth.
BNP said that while a healthy monsoon has boosted agriculture output, with the farm sector expected to grow by around 5-6 per cent in the current fiscal, non-agricultural GDP is projected to be unusually weak with.
It’s GDP growth projection is almost a full percentage point below the Reserve Bank’s 7.6 per cent forecast made in its October review and the Government’s recently reduced 7.5 per cent expectation for FY12. The Indian economy had expanded by 8.5 per cent in 2010—11.
“As we have long warned, with the weakness concentrated in the end of the fiscal year and weak capital spending inhibiting supply-side developments, FY-13 is unlikely to see a rapid recovery,” it said.
Economic growth in the second quarter (July-September) was a meagre 6.9 per cent, lowest in over two years, because of poor performance by manufacturing and mining sectors.
Industrial production entered negative zone in October and contracted by 5.1 per cent.
In its mid-quarter policy review released on Friday, the RBI said that the domestic policy uncertainties and the tight monetary stance are among the factors leading to slowdown and cautioned against downside risks to growth.
With regard to its growth projection of 7.6 per cent for the current fiscal, the RBI said, “considering the global and domestic macroeconomic situation, the downside risks to the RBI growth projection, as set out in the second quarter review (in October), have increased significantly“.
BNP said, meanwhile, that the overall inflation in India will moderate to 7 per cent, as projected by the Government and the RBI, by the fiscal—end and may fall even below that.