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Wednesday, Aug 14, 2002

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Morgan Stanley cuts forecast to 4.7%

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MUMBAI, Aug 13

EVEN though the monsoon has shown signs of reviving, Morgan Stanley has sharply lowered, the second time in two months, the GDP growth forecast for India for the current fiscal year to 4.7 per cent.

The international brokerage firm had last month cut the GDP growth forecast for India from 5.4 per cent to 5.1 per cent. Now, in a report on economic trends, Morgan Stanley has said that "growth is under the shadow of drought'', and slashed the growth prediction by a further 40 basis points.

Saying that the macro impact, if rains fail, will be far-reaching, the firm said fall in hydro-power generation and consequent impact on industry would add to the problems.

Private consumption of rural workforce, which accounts for 58 per cent of the total, would be hit. Prices of primary articles would increase and would lead to Government expenditure in the form of relief to farmers shooting up, it warned.

Even though the report was written in the first week of this month when weather conditions had worsened, it said the forecast assumes "monsoon conditions will improve in August and September''. Good weather in August and September will prevent further loss but the damage already done is irreversible, it said.

Morgan Stanley said although conditions may improve, farmers are unlikely to sow more than last year.

Preliminary estimates indicate cropped area taken up for cultivation was lower by 20.9 per cent as of July 29. Area under coverage for key crops, including rice, oilseeds and coarse cereals, is lower by around 25 per cent, the report said.

It now expects kharif output to decline by one per cent and rabi crop to grow by 1.5 per cent compared with 2.8 per cent last year. It has reduced the agriculture growth estimate for the year to 0.6 per cent from 1.7 per cent.

Morgan Stanley's warning comes immediately after Deutsche Bank sounded a warning on India and lowered the GDP growth forecast to five per cent from 5.5 per cent.

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