Crisil Research has lowered India's GDP growth forecast for 2011-12 to 7 per cent, from its earlier October estimate of 7.6 per cent.

The forecast has been scaled down in view of deterioration in the global economic outlook led by the Euro zone recession, a weaker-than-anticipated domestic investment climate and limited fiscal space to stimulate the economy, said a press release issued by Crisil.

“GDP growth is expected to slip further to 6.7 per cent in the second half of 2011-12 from 7.3 per cent in the first half. This will restrict the overall GDP growth for 2011-12 at 7 per cent. This would be the second-lowest growth in the past nine years after 6.8 per cent in 2008-09,” said Ms Roopa Kudva, Managing Director and CEO, Crisil.

Industry, services to see a slowdown

Industrial growth is projected to decline to 4.5 per cent in 2011-12; given that industry grew at a sluggish 4.2 per cent in the first half and a limited upside in growth during the second half. The industrial growth will remain constrained by lagged impact of Reserve Bank of India's interest rate hikes, weak exports due to slipping demand, particularly from Europe and growing bottlenecks in the mining sector.

“We have cut down our services sector growth forecast to 8.9 per cent this fiscal as slowing industry growth will reduce the demand for services,” Ms Kudva added.

Agriculture growth

However, on a positive note, Crisil Research has raised its agriculture sector growth forecast to 3.8 per cent from 3.2 per cent earlier, on account of the timely and steady progress of the monsoon, which enabled better sowing during the Kharif season and improved prospects for the Rabi crop.

Fiscal Deficit

Crisil Research expects the fiscal deficit to stay at 5.5 per cent of GDP for 2011-12 versus the Government's budgeted estimate of 4.6 per cent. The revision takes into account rising expenditure burden due to ballooning subsidies and slow revenue growth due to a tepid growth outlook.

A mild recession in the Euro zone is expected during the first half of calendar year 2012, to be followed by a moderate recovery. In this scenario, the supply of dollars from portfolio inflows will be lower than previous expectations of a recession-free Euro zone in 2012.

Hence Crisil Research has lowered its forecast for the rupee against the US dollar to 48, from the earlier forecast of 45-46. This will keep inflation at higher levels than expected earlier, the report said.

Inflation forecast

Crisil has revised its forecast for Wholesale Price Inflation for 2011-12 upwards to 9.2 per cent from its earlier forecast of 9.1 per cent. This is because the continuous weakening of the rupee has exerted additional pressure on the imported component of inflation.

Despite raising the average inflation forecast for 2011-12, Crisil expects it to head down from the current levels by March 2012.

“A normal monsoon and hence a good harvest has kept food inflation in check. Also, the impact of monetary tightening on domestic demand growth aided by a base effect will help in moderating inflation going ahead. In addition, recession in Euro zone could bring down global food and commodity prices, and help lower inflation to RBI's year-end projection of around 7.0 per cent,” the report said.

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