India's economic growth is likely to remain below eight per cent in the coming quarters owing to aggressive monetary tightening and worsening global prospects, Citigroup said in a research report.
“Recently-released macro and sectoral data indicate a clear slowdown in economic activity,” Citigroup said, adding that the “growth in the coming quarters will likely to remain in the sub-eight per cent range and average 7.6 per cent in FY-12.”
India's GDP growth slipped to 18-month low of 7.7 per cent in April-June quarter, the second consecutive quarter of sub-8 per cent growth.
“We expect this trend to continue due to lagged effect of 500 bps of tightening, structural policy issues, and worsening prospects on the global front,” the report added.
Revised projection
The domestic economy had clocked 8.5 per cent growth last fiscal, following which the government had first projected a nine per cent growth in the Budget, but revised it downwards to 8.2 per cent after the worsening of the Euro zone sovereign debt crisis and the fear of a double-dip recession in the US.
The worsening global economic situation has taken a toll on the domestic currency and equities. Moreover, higher deficits and peaking inflation are likely to further add to the burden, Citigroup said.
Over the last month, the rupee has weakened 7.3 per cent, and the Sensex has dropped 3.98 per cent. The headline inflation for August stood at an uncomfortable 9.78 per cent.
“While we have been expecting inflation to remain elevated due to higher minimum support prices of agricultural crops and continued upward revisions to past data; two further price pressures have emerged — firstly commodity prices have showed no sign of abating despite slowing global demand, and secondly, weakness in rupee — which adds to inflationary woes,” the report said.