Crisil pegs GDP growth at 6.24% for 2004-05

Credit rating agency Crisil has projected the economy to grow slower at 6.24 per cent in the current fiscal, compared with a gross domestic product growth rate of 8.53 per cent expected in 2003-04.

While the industry and services sectors were expected to continue the growth momentum of the previous fiscal, farm sector growth might remain flat in 2004-05, Crisil said.

The agency said the flat farm sector growth in the current fiscal was despite expectations of a normal monsoon. The 9.67 per cent 'above trend' growth in agriculture in 2003-04 translates to a dip in the growth rate in 2004-05.

"Given the high base, a simple trend forecast for agriculture, even with a normal monsoon, translates into a negative growth rate for 2004-05," it said.

The estimate that the industry will grow 7.16 per cent in 2004-05 is based on the expectation that private investment will pick up this fiscal, given the high capacity utilisation rates in most of the sectors, lower interest rates and increased internal cash accruals.

The 8.64 per cent growth rate of the services sector in the current fiscal will be driven by the continuing industrial recovery and the lagged and contemporaneous effects of 'above-trend' agricultural growth.

"We expect recovery in the US to translate into more demand for outsourcing and IT-related services," Crisil said.

The agency also said the trade deficit was likely to widen during the fiscal due to high oil prices and strong capital goods imports.

"We expect oil imports to grow in the 20-25 per cent range over the year and non-oil imports to clock 20 per cent growth in FY05. If oil prices harden further, there can be stronger pressure on the trade deficit," Crisil said.

However, software exports and private transfers would mitigate pressures on the current account, it added.

Inflation during the current fiscal is expected to be around 5 per cent with a downward bias, given the decline in international oil prices but continued buoyancy in the manufactured goods sector.

The trend of the rupee appreciating against the dollar is likely to continue on the back of continued foreign inflows and uncertainty about the US recovery. It will be in the 43-44 per dollar range during the first half of the current fiscal and 44-45 in the second half.

The fiscal deficit during 2004-05 was, however, expected to be 4.8 per cent of the GDP, against the 4.4 per cent of GDP target set by the finance ministry in its interim Budget.

"Lower projected GDP compared with interim Budget assumptions account for the slippage in revenues, and hence, the deficit," Crisil said. The interest rates are expected to harden 50 basis points during the year.

---

Cooling down

• Inflation to be 5% with downward bias.
• Interest rates to harden by 50 basis points.
• Fiscal deficit may miss target and touch 4.8% of GDP.
• Spike in oil prices to mitigate forward movement.
• Trade deficit to widen further.