GDP to dip to 8.1pc, inflation to stablise at 5.5 pc: Crisil

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New Delhi, Apr 25: Even as official information on India's GDP growth for 2007-08 is awaited, rating agency Crisil has lowered its forecast for the growth for fiscal 2008-09 to 8.1 per cent from the earlier forecast of 8.5 per cent on account of worsening inflation, interest rate and global growth outlook.

The government's advance estimates had put gross domestic product growth at 8.7 per cent for 2007-08, almost one per cent less than 9.6 per cent recorded in 2006-07.

But this estimate, based on data supplied by Central Statistical Organisation, was still higher than the Reserve Bank of India's forecast of 8.5 per cent GDP growth for 2007-08.

RBI is likely to lower its forecast for the current fiscal to around eight per cent.

Crisil said notwithstanding its forecast of moderate GDP growth in FY09, the overall growth scenario in India is expected to remain strong with investment as the main driver. Domestic private consumption demand will also provide some support to the economy against slowing external demand.

The agency lowered forecasts for industry and services growth to eight per cent and 9.8 per cent respectively but expects agriculture to grow at three per cent if it is a normal monsoon this year.

Explaining lowering of its forecast for India's GDP growth in the current fiscal which began on April 1, Crisil principal economist Dharmakirti Joshi said, ''our earlier GDP forecast of 8.5 per cent had assumed a cut in the policy interest rate by the central bank in response to the slowing economy.

This is now ruled out since current inflation and inflationary expectations are way beyond the RBI's comfort zone of 4.5-5 per cent.

This, coupled with, the recent slowing down of global growth projections, has resulted in us revising our growth projections downwards for 2008-09. The growth will be slower but still a healthy 8.1 per cent.'' The agency said current pressure on inflation is from primary commodities and oil - a worldwide phenomenon related to the supply crunch which is not expected to ease soon. ''As a consequence, despite growth deceleration, we expect inflation at an average of 5.5 per cent in 2008-09 under a normal monsoon scenario,'' Mr Joshi said.

Forecasting inflation to remain high in the next few months, Crisil, however, expects it to soften towards the end of the year. But at the same time, it warned that if monsoons are sub-normal and agricultural production falters, inflation could worsen.

Given high inflationary expectations, the RBI has already raised cash reserve ratio (CRR) by 50 basis points ahead of the policy announcement next week.

Stating that India's fiscal situation is also under increased pressure, Crisil said growth in tax collections will decline with the decline expected in GDP growth as also due to loss of revenues on account of recent duty cuts announced by the government in a bid to tame inflation.

Crisil said government's subsidy bill on fuel and fertilisers is also set to rise due to high global food and crude price. In view of these factors, the agency has upped its forecast on fiscal deficit to 3.9 per cent of GDP, inclusive of the off-budget items, for 2008-09.


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