Growth recovery depends on agriculture: CRISIL

Slowing growth has had an adverse impact on tax revenues and the depreciating rupee is raising the subsidy burden of the government

Rating agency CRISIL said on Friday that any recovery in India’s economic situation would depend on agriculture growth on the back of a satisfactory monsoon. The momentum in services and industry is likely to remain weak, the rating agency noted.

According to CRISIL, the 4.4 per cent GDP growth in the first quarter came on the back of higher government spending. The growth may not be sustainable in the coming quarters, it added.

Higher government spending lifted the growth of community, social and personal services to 9.4 per cent in the first quarter, compared to four per cent in the previous quarter.

“If not for a sharp increase in government spending, community, social and personal services would have, at best, maintained its average growth rate of the past few quarters and GDP growth in Q1, 2013-14 would have been even lower at around 4.0 per cent,” the agency said.

Slowing growth is having an adverse impact on tax revenues and the depreciating rupee is raising the subsidy burden of the government, CRISIL warned. It said the government will have to cut back expenditure sharply from budgeted levels to maintain its fiscal deficit target of 4.8 per cent of GDP.

With the liquidity tightening measures increasing the cost of funds for the banks and a weak rupee worsening inflationary risks, the likelihood of a repo rate cut has waned. Therefore, higher lending rates will further lower investment demand, delaying a recovery in the manufacturing sector, CRISIL said.