New Delhi: CRISIL Ltd's Indian research unit Crisil Research has cut India's gross domestic product (GDP) projection to 5.5% for the current financial year 2012-13 from its June forecast of 6.5%, citing poor monsoon rains and escalating Euro zone debt crisis.
"The downward revision in India's growth forecast factors in the adverse impact of rainfall deficiency and worsening of the Euro zone growth outlook," Crisil Research said Tuesday in its report titled -- India macroeconomic outlook revision 2012-13.
Last week, the weather office said that annual monsoon rains, crucial to farm dependent Indian economy, is expected to be 15% below average this year, although it refrained from terming the situation a drought.
"The revised growth forecast assumes that the stretched fiscal situation will limit the ability of the government to give a generous stimulus to the economy," the report said.
India's fiscal deficit in the Apr-Jun period at Rs 1.9 trillion crossed 37.1% of the current financial year 2012-13's budgeted estimate. In the last fiscal, the government overshot its fiscal deficit target by a whopping 110 basis points to 5.7%, as subsidy burden rose and revenue fell short of expectations.
According to Crisil Research, India's fiscal deficit is expected to widen to 6.2% of GDP in 2012-13 from its earlier estimate of 5.8%.
The rating agency also revised upwards its forecast for average wholesale price index (WPI) inflation to 8% for this fiscal from 7% earlier, signalling the negative impact of deficit monsoons on food prices.
India's WPI inflation moderated to 7.25% in June from 7.55% in May, but is still ruling way above the Reserve Bank of India's (RBI) comfort level of 5%.
Earlier July, the RBI, in its first quarterly monetary policy review, kept its repo rate and cash reserve ratio unchanged for the second time in a row, saying that reduction in policy rates at this point could aggravate already high inflation rather than bolster economic growth, which fell to a nine-year low in the March quarter.
On the rupee, Crisil Research expects the Indian currency to settle to around Rs 53 against the US dollar by March 31, 2013, from its earlier projection of Rs 50 against the dollar.
The rupee, one of Asia's worst performing currencies, has been consistently under pressure due to heavy dollar demand from oil importers and other companies as Euro zone debt crisis concerns continue to weigh on the currency.
Recently, the RBI also cut its growth forecast for India to 6.5% for this fiscal from 7.3% earlier.
India's GDP grew by 6.5% in the last fiscal 2011-12, sharply slower than 8.4% a year ago, casting a shadow over the much-touted India's growth story.