Rating agency Standard and Poor’s has lowered the growth forecast for India to 5.5 per cent this year. This is almost one percentage point lower than the previous forecast.
However, the Economic Advisory Council to the Prime Minister (PMEAC) has refuted this projection. Its Chairman C. Rangarajan expects the economy to grow 6.7 per cent this fiscal.
According to S&P, the triple effect of a slowdown in China, ongoing troubles in the Euro Zone, and weak recovery in the US has prompted it to lower its economic growth forecast for Asia-Pacific.
Talking specifically about India, it said, “The lack of monsoon rains has affected India, for which agriculture still forms a substantial part of the economy.” Interestingly, the report has not noted reduction in the monsoon shortfall. Latest monsoon data show that deficit has come down to 5 per cent.
The report highlights infrastructural problems. “The more cautious investor sentiment globally has seen potential investors become more critical of India’s policy and infrastructure shortcomings. The latter was recently highlighted by the power outage in early August that affected 20 of India’s 28 States.”
According to S&P credit analyst Andrew Palmer, “Any worsening of the economic conditions in the Euro Zone will increase contagion risk for Asia-Pacific, given the region’s, particularly the open economies, sensitivity to capital flows and trade.”
S&P has also lowered the base forecasts of 2012 real GDP growth by about half a percentage point for some countries including China, Japan, Korea, Singapore and Taiwan.
Earlier this month, Morgan Stanley had lowered India’s growth forecast to 5.1 per cent for the current fiscal from its earlier estimate of 5.8 per cent; HSBC scaled down its prediction to 5.7 per cent from 6.2 per cent; and Standard Chartered to 5.4 per cent from 6.2 per cent projected earlier.