Crisil expects gross domestic product to increase by 7.6% in 2011-12; Ficci pegs it at 7.9%.
At a time when the government is trying to dispel a general perception about policy paralysis, a global research analysis firm and a leading industry chamber on Monday scaled down India’s economic growth projections for the current financial year. Reason: “Grim” investment climate owing to a dim policy environment and low business confidence.
Crisil Research upped its estimates for average inflation that is currently running at 9.78 per cent in August for 2011-12, while Ficci said it would remain high. The credit rating agency lowered the GDP growth projection to 7.6 per cent from its earlier estimate of 7.7-8 per cent. Ficci, on its part, pegged it at 7.5-8 per cent, but expected the growth to be in the lower band of the range. Earlier, a Ficci survey with independent economists had pegged economic growth at 7.9 per cent.
The two bodies also based their new estimates on global economic uncertainty.
If these forecasts turn true, India’s growth will be lower than what it recorded in 2009-10, but higher than 2008-09 when a wave of global financial crisis had peaked.
“The forecast,” Crisil Research said, “has been scaled down in view of the deteriorating global economic scenario and the grim investment climate in India on account of the policy environment.” The developed economies would witness a slowdown, but avoid another recession, it added.
“We had anticipated the impact of rising interest rates and slowing government expenditure, but the deceleration in advanced countries has been sharper than expected,” according to Crisil Limited managing director and CEO Roopa Kudva. “This, in conjunction with the weak investment climate, is impacting India’s GDP growth prospects.”
| GDP GROWTH FOR 2011-12 | ||
| Institution (2011) | Month | GDP Growth Forecast (%) |
| Ministry of Finance | February | 9.0 (Economic Survey) |
| July | 8.6 (Finance Ministry's Background Note) | |
| Prime Minister’s Economic Advisory Council (PMEAC) | February | 9.0 |
| July | 8.2 | |
| September | 8.0 (Dr C Rangarajan's personal estimate) | |
| Reserve Bank of India (RBI) | July | 8.0 |
| September | 8.0 (with downside risks) | |
| International Monetary Fund (IMF) | June | 8.2 (2011), 7.8 (2012) |
| September | 7.8 (2011), 7.5 (2012) | |
| Crisil | May | 7.7 to 8.0 |
| October | 7.6 | |
| Ficci | July (EOS) | 7.9* |
| September | 7.5 to 8.0 (with significant downside risks) ** | |
| IMF figures are for calendar years.*Ficci July 2011 Economic Outlook Survey (EOS) with independent economists **Ficci estimates the GDP growth to be in the lower band of 7.5 % to 8 % Sources: Ministry of Finance, PMEAC, RBI, IMF, Crisil, Ficci | ||
Crisil Research expected the industry to grow by 6.5 per cent in 2011-12, as compared to the previous forecast of 7.3 per cent due to adverse impact of interest rate hikes and regulatory hurdles in the mining sector (an important source of raw material). It also expected a slowdown in the industry to spill over to services, which are now expected to grow by 9.2 per cent from earlier estimation of 9.4 per cent.
The government is struggling hard to remove the perception of policy paralysis. When asked to comment, Crisil chief economist D K Joshi said, “I will not use harsh words like policy paralysis, but the policy action has been slow.” Crisil also revised upwards average inflation forecast for 2011-12 to 9.1 per cent from 8.0-8.5 per cent.
Ficci, while pegging economic growth at 7.5-8 per cent, said in order to clock 8 per cent economic expansion for the current fiscal, the GDP has to grow at 8.1 per cent in the remaining course of the current fiscal. This was an “unlikely” scenario. For the record, the GDP grew by 7.7 per cent in the first quarter of this fiscal.
“Ficci estimates that the GDP growth in the current fiscal may be in the lower band of 7.5-8 per cent with some significant downside risks,” the 1927-founded chamber said.
The new estimates by these bodies assume significance, since widely tracked HSBC Purchasing Managers’ Index showed that services contracted in September for the first time since April 2009. and manufacturing was close to decline.
