Credit ratings agency ICRA cut its forecast for gross domestic product (GDP) growth for the current fiscal to 5.4 per cent from 5.7 per cent it forecast previously.

The absence of a pick up in private investment activity despite an improvement in sentiments; low transmission of the reduction in the cash reserve ratio since September 2012; expectations of back-ended cut in the Repo rate (reduction of 50 bps in Q4FY13); and moderating consumption demand were some of the reasons that ICRA gave for its revised estimates.

The credit rating agency also said that the Government was likely to exceed its revised fiscal deficit target of 5.3 per cent on the back of higher subsidies on fuel, Government’s limited options to control expenditure and lower tax and non-tax revenue.

It pegged the fiscal deficit at about 5.6-5.7 per cent of GDP in 2012-13

ICRA expects the slippage in the fiscal deficit to be funded by an enhancement in the announced long-term market borrowing programme for Q4FY13 by Rs. 40,000-50,000 crore.

It may be noted that the Government could raise only Rs 9,407.64 crore from the auction of 2G spectrum recently.

ICRA said that despite a late recovery in monsoon, macroeconomic fundamentals remain clouded. It expects the wholesale price index based inflation to average 7.5 to 7.7 per cent in the current fiscal.

“As against a two per cent shortfall in sowing, the First Advance Estimates of Crop Production released by Government of India indicate a seven per cent decline in the production of kharif crops, which suggests that growth of agriculture & allied activities is likely to be low in the second half of 2012,” ICRA said.

satyanarayan.iyer@thehindu.co.in

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