The Hindu Business Line : Crisil scales down GDP growth forecast to 8.1%

Downward trend
Growth for sectors such as industry and services has been adjusted downwards to 8 per cent and 9.8 per cent respectively.
Agriculture sector will grow at 3 per cent assuming a normal monsoon this year.

Our Bureau

Mumbai, April 22 Rating agency Crisil has revised its GDP growth forecast to 8.1 per cent for 2008-09 from the earlier forecast of 8.5 per cent in view of the worsening inflation, interest rate and global growth outlook. Despite some moderation, the overall growth scenario is expected to remain strong with investment as the main driver, said the Crisil report.

Growth for sectors such as industry and services has also been adjusted downwards to 8 per cent and 9.8 per cent respectively. Agriculture sector will grow at 3 per cent assuming a normal monsoon this year.

As the current inflationary expectations are way beyond the Reserve Bank of India’s comfort zone of 4-5-5 per cent, a cut in key interest rates has been ruled out, said the report. Also, the recent scaling down of global growth projections has led to revising growth projections downwards for 2008-09.

High commodity prices

The report said that inflation would remain high in the next few months due to high commodity prices globally. But it would moderate to 5.5 per cent closer to March 2009, if the monsoon is normal. Conversely, if monsoons are sub-normal and agricultural production falters, inflation scenario could worsen.

Mr Dharmakirti Joshi, Principal Economist, Crisil, said: “Good monsoon means good supply of commodities such as rice and wheat, which will help in easing high prices. But the moment we falter on agriculture, the pressure on prices will be huge. In any case, our agri products prices have not shot up as much as the global prices.”

He added, “Edible oil is the only problematic area as 50 per cent of the oil is being imported. But the Government has already cut the duty on import of edible oil.”

The hike in CRR by the RBI is not likely to help current inflation, but it will help control inflationary expectation, said Mr Joshi.

No interest hike

Ruling out a hike in key interest rates like the repo rate, Mr Joshi said, “A hike in repo rate will reduce demand and reduce GDP growth. But the economy is already slowing down. Therefore, we do not expect a hike in repo rates unless the RBI believes that there is need to slowdown the growth faster.”

The report has also revised the forecast on fiscal deficit for 2008-09 upwards to 3.9 per cent of GDP, against 2.5 per cent as estimated in the Budget.

Mr Joshi said, “The Budget had not taken into account the impact of the Sixth Pay Commission and the farm loan waiver. Also, the oil and food subsidies are higher. The Government has also reduced the custom and excise duties, due to which revenues from tax collection will fall.”

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