NEW DELHI: India's gross domestic product (GDP) is estimated to grow an annual 6.9 per cent in the 2011/12 fiscal year, a government statement said on Tuesday, citing provisional estimates.
Farm output is expected to grow 2.5 per cent, while manufacturing sector is seen growing an estimated 3.9 per cent in the current fiscal year that ends in March.
The economy grew at 8.4 per cent each in the previous two fiscal years, revised data from the government showed.
Economists say the Reserve Bank of India's (RBI) aggressive policy tightening since March 2010 has steadily reduced investment activity and is now threatening to squeeze growth to levels last seen during the financial crisis in 2008-2009.
"From an original forecast of 9 per cent growth to now 6.9 per cent is a significant climb down. We expect that going forward growth momentum will remain subdued," said Sujan Hajra, chief economist at Anand Rathi Securities.
"From the monetary policy point of view, signals are very clear that policy will remain accommodative."
Global agency Standard & Poor's has warned that India's sovereign rating may come under pressure if the government fails to arrest rising inflation, widening fiscal deficit and slowdown.
An S&P report released on Monday upheld India's current rating at BBB- with a stable outlook, but warned that negative factors combined with the government's weak policies "may lead us to a tipping point". "We don't expect to downgrade or revise the outlook on the long-term rating in the near future," the report said. "(But) continuous loose fiscal policy or policy setbacks on the monetary, financial, and economic fronts that lower India's medium-term growth prospects could result in a rating downgrade."
S&P expects India's GDP growth at 6.8% in 2011-12 and 6.5% in 2012-13. India's per capita GDP, however, still remains among the lowest of all investment grade sovereigns, the report said.
While it cited economic growth as a positive factor, political gridlocks acted as the biggest negative pressure on the country's rating, S&P said.
"Indian government's ability to implement policies has weakened, due to the slow and complex decision-making processa¦how and the extent to which the UPA government can implement measures to improve economic growth and fiscal prudence will be vital to boosting confidence in India," the report said.
The centre's fiscal deficit is expected to breach the targeted 4.6% of GDP by 1% in 2011-12 because of slowdown, higher subsidy bill and shortfall in divestment receipts. Consolidated state and central fiscal deficit is also expected to stay high at 8.5% in 2011-12 and 8.1% in 2012-13.
"Such fiscal conditions, with stubbornly high inflation and tight monetary policy, potentially increase government bond yields and general interest rates," the report said. "If the government can introduce a credible and practical legal framework for medium-term fiscal consolidation, we believe market confidence would improve." S&P said fiscal reforms such as lowering subsidies, a new law to succeed the Fiscal Responsibility and Budget Management Act and early implementation of the GST could help stabilize and increase government revenues in the medium term and raise India's ratings.
Although, India's external position is expected to remain under control despite recent fluctuations in rupee, poor investor confidence could dent the buffer against liquidity risks as capital outflows increase. It expects the current account deficit at 2.6% in 2011-12.
"We expect India's total external financing requirement for the 12 months ending March 2012 will be 85.5% of the current account receipts and usable foreign currency reserves. We, therefore, don't see any imminent danger in the country's external liquidity," the report said.
Farm output is expected to grow 2.5 per cent, while manufacturing sector is seen growing an estimated 3.9 per cent in the current fiscal year that ends in March.
The economy grew at 8.4 per cent each in the previous two fiscal years, revised data from the government showed.
Economists say the Reserve Bank of India's (RBI) aggressive policy tightening since March 2010 has steadily reduced investment activity and is now threatening to squeeze growth to levels last seen during the financial crisis in 2008-2009.
"From an original forecast of 9 per cent growth to now 6.9 per cent is a significant climb down. We expect that going forward growth momentum will remain subdued," said Sujan Hajra, chief economist at Anand Rathi Securities.
"From the monetary policy point of view, signals are very clear that policy will remain accommodative."
Global agency Standard & Poor's has warned that India's sovereign rating may come under pressure if the government fails to arrest rising inflation, widening fiscal deficit and slowdown.
An S&P report released on Monday upheld India's current rating at BBB- with a stable outlook, but warned that negative factors combined with the government's weak policies "may lead us to a tipping point". "We don't expect to downgrade or revise the outlook on the long-term rating in the near future," the report said. "(But) continuous loose fiscal policy or policy setbacks on the monetary, financial, and economic fronts that lower India's medium-term growth prospects could result in a rating downgrade."
S&P expects India's GDP growth at 6.8% in 2011-12 and 6.5% in 2012-13. India's per capita GDP, however, still remains among the lowest of all investment grade sovereigns, the report said.
While it cited economic growth as a positive factor, political gridlocks acted as the biggest negative pressure on the country's rating, S&P said.
"Indian government's ability to implement policies has weakened, due to the slow and complex decision-making processa¦how and the extent to which the UPA government can implement measures to improve economic growth and fiscal prudence will be vital to boosting confidence in India," the report said.
The centre's fiscal deficit is expected to breach the targeted 4.6% of GDP by 1% in 2011-12 because of slowdown, higher subsidy bill and shortfall in divestment receipts. Consolidated state and central fiscal deficit is also expected to stay high at 8.5% in 2011-12 and 8.1% in 2012-13.
"Such fiscal conditions, with stubbornly high inflation and tight monetary policy, potentially increase government bond yields and general interest rates," the report said. "If the government can introduce a credible and practical legal framework for medium-term fiscal consolidation, we believe market confidence would improve." S&P said fiscal reforms such as lowering subsidies, a new law to succeed the Fiscal Responsibility and Budget Management Act and early implementation of the GST could help stabilize and increase government revenues in the medium term and raise India's ratings.
Although, India's external position is expected to remain under control despite recent fluctuations in rupee, poor investor confidence could dent the buffer against liquidity risks as capital outflows increase. It expects the current account deficit at 2.6% in 2011-12.
"We expect India's total external financing requirement for the 12 months ending March 2012 will be 85.5% of the current account receipts and usable foreign currency reserves. We, therefore, don't see any imminent danger in the country's external liquidity," the report said.
(Source- http://economictimes.indiatimes.com)
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