 "In mid-year economic review, govt cuts GDP growth estimate to 7-7.5%")
ndia slashed its full-year economic growth forecast on Friday, weighed down by weak global demand and a drought that has created risks for farm output, but reiterated its commitment to narrow the fiscal deficit to an eight-year low.
Asia's third-largest economy is now expected to grow 7-7.5 percent in the fiscal year ending in March 2016, the finance ministry said in its mid-year economic review, down from an estimate of 8.1-8.5 percent announced in February.
The downgrade came after the economy grew 7.2 percent in the first half of the 2015/16 fiscal year.
Still, if it meets the government's estimate, the South Asian nation will remain the world's fastest growing major economy as China's GDP is struggling to maintain the near-7 percent pace promised by its leaders.
Slowing demand for Indian merchandise in overseas markets has hit growth as exports, that account for about a fifth of India's $2 trillion economy, have tumbled for the past 12 months.
"Declining exports seem to be predominantly determined by a decline in the world demand," the report said. "Regardless of the causes, the effect has been a drag on growth."
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Growth in 2016/17 is unlikely to be significantly higher, the report said.
The finance ministry said it will stick to its budgeted fiscal deficit target of 3.9 percent of GDP for the current fiscal year.
But the fiscal outlook for 2016/17 looks challenging and the government will need to reassess its commitment to cut the deficit further by 0.4% of its GDP in the financial year that begins in April, the report cautioned.
The government hopes to hit the target without cutting expenditure or deferring tax refunds, Finance Minister Arun Jaitley had said earlier this week.
In the Union Budget presented in February, Jaitley had pledged to narrow the fiscal deficit to 3.9% in this fiscal from 4% in FY15.
The Centre also warned that the proposed wage hike for central government employees by the Seventh Pay Commission could adversely impact the fiscal deficit.
The government also said it would target retail inflation of 6% by the end of March 2016.
The government suggested whether the country needed a more flexible timeline for its inflation targets given the need to help indebted companies lower their debt levels, according to its mid-year economic report out on Friday.
"How can borrowing costs be lowered without jeopardising the medium term inflation objective?" the government said in the report, authored by Chief Economic Adviser Arvind Subramanian.
"Is there a case for a more gradual glide path or greater flexibility in interpreting the inflation objective?"
The Reserve Bank of India Governor Raghuram Rajan has set a target for consumer inflation of 5 percent by March 2017 and 4 percent in the medium term, as part of his "glided path" approach to monetary policy.
Analysts have said achieving those objectives could be challenging given India's history of volatile food prices.
The finance ministry also plans to set up a public debt management agency through an executive order, according to the government's mid-year economic report on Friday.
Finance Minister Arun Jaitley had announced in February a plan to set up a new agency in charge of selling debt on behalf of the government, taking that function away from the Reserve Bank of India.
However, the government has yet to unveil the agency as discussions have continued with the central bank, given RBI Governor Raghuram Rajan has expressed some reluctance about giving away debt management powers to a government agency.
Meanwhile, the budget estimate for disinvestment during the year 2015-16 has been set at Rs 69,500 crore.