Crisil cuts FY09 GDP forecast to 8.1%

Crisil has lowered its GDP growth forecast to 8.1% for FY09 from the earlier forecast of 8.5% on account of worsening inflation, interest rate and global growth outlook. Inflation, however, is expected to stabilise at 5.5%. On the other hand rating agency Moody’s expects India’s GDP growth to moderate from 8.9% in 2007 to 7.8% this year, while consumer price inflation will average under 6%.

Crisil said that though there would be some moderation, the overall growth scenario is expected to remain strong on sound investments. Domestic private consumption demand will also provide some support to the economy against slowing external demand. Sectoral forecasts for industry and services have also been adjusted downward to 8% and 9.8%, respectively. Assuming a normal monsoon this year, Crisil expects agriculture to grow at 3%.

Crisil’s earlier GDP forecast of 8.5% had assumed a cut in the policy interest rate by the central bank in response to the slowing economy. This is now ruled out since current inflation and inflationary expectations are way beyond the RBI’s comfort zone of 4.5-5%. This, coupled with the recent scaling down of global growth projections, has resulted in revising the growth projections downward for 2008-09. The growth is expected to be slower, but still a healthy 8.1%.