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Crisil cuts GDP growth to 5.

5 %

Factors in adverse impact of rainfall deficiency and worsening of eurozone growth outlook
Rating agency Crisil Research, on Tuesday, cut Indias real gross domestic product (GDP) growth forecast for 2012-13 to 5.5 per cent from its earlier forecast of 6.5 per cent. The revised forecast of Crisil is one percentage point down from the Reserve Bank of Indias forecast of GDP for the same period, one week back. The RBI, on July 31, reduced the GDP forecast for the current financial year from 7.3 per cent to 6.5 per cent and hiked the inflation forecast from 6.5 per cent to7 per cent. However, Crisil raised the average WPI (wholesale price index) inflation forecast to 8 per cent from 7 per cent earlier. The downward revision in Indias growth forecast factors in the adverse impact of rainfall deficiency (an expected deficiency of 15 per cent for June-September 2012, as per Indian Meteorological Department) and worsening of the eurozone growth outlook, said Crisil Rating in its Insight on macro-economic outlook revision 2012-13. Swift policy action to solve issues related to mining, land acquisition and speedy clearance of projects can create upside to the growth projection, said Crisil. Despite slowing growth, Crisil Research has revised upwards its average WPI inflation forecast for 2012-13 to 8 per cent to reflect the adverse impact of deficient monsoon on food inflation. We now expect the fiscal deficit to worsen to 6.2 per cent of GDP in 2012-13 from our earlier estimate of 5.8 per cent. The increase in the fiscal deficit to GDP ratio largely reflects lower revenue growth as a result of slowing GDP growth. In case of a substantial fiscal stimulus to the economy, the fiscal deficit to GDP ratio could worsen further. Further, it said that the rupee was now expected to settle around 53 per U.S. dollar by March 2013 compared to its earlier forecast of 50 per U.S. dollar. Given the worsening of the eurozone economy as well as domestic growth slowdown, we now expect the Indian economy to attract lower foreign capital inflows compared to our earlier estimate. Meanwhile, RBS Private Banking said that investors could look forward to Indian equities outperforming in the second-half of 2012 on the back of an expected change in policy stance.

A moderate outlook suggests that growth is likely to skim below the 7 per cent mark for the remainder of the year while inflation also falls. said Rajesh Cheruvu, Chief Investment Officer, RBS Private Banking, in the Mid-Year India Outlook 2012 report. According to RBS, the year-end forecast is for the rupee to strengthen to 52 per dollar, driven by a fall in the trade deficit due to falling oil prices and a decline in gold imports.