“India’s GDP may slow down as against current growth rate in the next fiscal due to increasing inflation, global recession and unfavourable condition in the normal monsoon conditions” said Credit Rating Information of Service of India Ltd (CRISIL) in an official released on Tuesday.
It will grow 8.1%’ as against CRISIL’s prediction of growth rate at 8.5%. “The condition may worse if monsoon goes sub-normal and agricultural production falters,” said CRISIL. However, it assumes that the overall inflation rate may be an average of 5.5% in 2008-09 despite growth deceleration.
“The fiscal situation is also under pressure. Growth in tax collections is expected to decline as GDP growth moderates, with a further loss of revenues because of the recent duty cuts,” said CRISIL.
The government has taken several measures to tame inflation that include the cut in duty in edible oil import. But despite these measures, the inflation would continuously put pressure on the growth rate. However, domestic private consumption demand would provide some support while the external demand would decline due to global recession.
The price rise in all essential commodities is growing across the globe. The condition of food grains is very critical in the world especially in African sub-continent, as per UNO reported.
The price of crude oil has also crossed the 107$ mark per barrel while the price rises of steel, gold and other commodities are skyrocketing. All these would put huge pressure in the growth rate of India.
“The growth will be slower, but still a healthy 8.1%,” it said.
The growth rate in industry and service sector will also slow down to 8% and 9.8% respectively while Agriculture growth may rises in the favourable monsoon condition from current 2% to expected 3%, as CRISIL predicted.
“Good monsoon means good supply of commodities such as rice and wheat, which will help in easing high prices,” said Dharmakirti Joshi, Principal Economist of CRISIL. “But the moment we falter on agriculture, the pressure on prices will be huge,” he said.
However, he hopes that the prices of agro products will remain not so high as in the world.
The Reserve Bank of India has also raised the Cash Reserve Ratio (CRR) by 50 basis point well before the new credit policy to control the inflation, while Agricultural Minister Sharad Pawar had announced few days ago to check future trading in some essential commodities.
But, as per CRISIL, “A hike in repo rate will reduce demand and reduce GDP growth.” while the economy is already slowing down, so, “we do not expect a hike in repo rates unless the RBI believes that there is need to slowdown the growth faster,” said Joshi.
Dharmkirti in his statement has said that government has not measured the forthcoming impact of Sixth Pay Commission and farmer’s loan waiver in the presented budget.
The report has also revised the forecast on fiscal deficit to 3.9 per cent of GDP from estimated 2.5 per cent in the budget for the next fiscal.
Besides this, CRISIL has revised the 10-year G-sec rate upwards accordingly to 7.7-7.9% by March 2009.
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