India Ratings marginally cuts country's growth forecast

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SME Times News Bureau | 08 Nov, 2014
Financial ratings firm India Ratings & Research Friday downgraded its gross domestic product (GDP) growth forecast to 5.6 percent from 5.7 percent due to expected low rise in industrial activity.

"Although the macro-economic environment has improved significantly since mid-2013, we believe that a non-inflationary and sustained economic growth of seven percent or above, over the medium term, is not possible without continued economic reforms and policy thrust," the ratings firm was quoted in a statement.

"This is mainly because we now expect the industrial sector growth to be 4.6 percent as compared to 5.1 percent forecasted earlier."

The ratings agency said that the declining crude prices have improved both the fiscal and inflation outlook. The oil subsidy is a breather for the government on the expenditure front but slow growth in tax collection so far is a major concern on the revenue front.

"According to our estimate, fiscal deficit would be 4.2 percent of the GDP in FY15, marginally higher than the budget estimate of 4.1 percent. Sharp decline in inflation, improved fiscal outlook and easy liquidity have been driving the 10-year G-sec yield downward lately," the statement said.

The ratings agency added that it does not expect an impending rate cut by the Reserve Bank of India in the monetary policy review in December 2014, but pointed out that there is a high probability to a rate cut being announced in February 2015.

Earlier, ratings agency Moody's said that India’s economy can easily hit seven percent growth rate with modest reforms.

"Even without much government help, the economy should grow by around 5 percent this year and close to 6 percent in 2015," Glenn Levine, senior economist, Moody’s Analytics, had said in August.

Asia's third largest economy has witnessed sub-five percent economic growth rates in over two decades time in the last two years.