International financial conglomerate Citigroup today revised its 2011-12 growth forecast for the Indian economy downward to 7.1% from the earlier estimate of 7.6% on account of the global slowdown and domestic factors like a tight monetary policy.
"We are reducing our FY12 GDP estimate from 7.6% to 7.1%," Citi Investment Research & Analysis said in its 'India Microscope' report.
The global major has also revised its forecast for India's Gross Domestic Product (GDP) growth in 2012-13 downward to 7% from the earlier estimate of 7.5%.
Citi's growth projection for the current fiscal is way below the 7.6% forecast made by the Reserve Bank.
It is also lower than the projections made by the Organisation for Economic Cooperation and Development (OECD), Centre for Monitoring of India Economy (CMIE), Crisil and ICRA, who have all pegged India's GDP growth in 2011-12 at between 7.3% and 7.6%.
The Indian economy expanded by 8.5% in 2010-11.
Citi said the hangover from the pre-recession credit boom will cast a shadow in 2012 as well.
"In addition, domestic issues, including supply-side bottlenecks in the coal and power sector and the lagged impact of monetary tightening, are taking a toll on domestic growth," it said.
It said the current situation is reminiscent of 2008-09, when the Indian economy faced a plethora of problems, including the global crisis, delayed investments due to uncertainty on the election front and aggressive policy tightening resulting in a slowdown.
"Unfortunately, India has less manoeuvrability relative to the 2008 pullback given its increased fiscal constraints, elevated levels of inflation and government decision-making. This will likely result in to weak growth," Citi said.
While issues like environmental clearances and land acquisition have affected infrastructure sectors like power and coal, the high interest rate regime has been blamed for making credit expensive and leading to a halt in fresh investment.
The RBI has hiked lending rates 13 times by a total of 350 basis points since March, 2010, to curb inflation.
In addition, the world economy has been affected by the debt crisis in the euro zone and a slowdown and high unemployment in the US.
Regarding inflation, Citi said: "We expect inflation to remain over 9% till the end of 2011 and average 7.5-8% in 2012."
Headline inflation has been above the 9%-mark since December last year and stood at 9.73% in October this year.
