New Delhi: India's economic growth may slide to 5.8% in the current financial year 2012-13 if the recession in Greece and Spain intensifies on account of short-term negative impact of economic reforms which are part of the bailout packages announced for these Euro zone countries, rating agency CRISIL Ltd's Indian research unit Crisil Research said.
Further, if Greece exits the Euro zone in the next three to four months, India's gross domestic product (GDP) growth is likely to deteriorate to 5% in the current fiscal, Crisil Research said in a statement.
However, "barring" such "unfavourable developments" in the Euro zone, the research unit expects the Indian economy to grow at 6.5% in the current fiscal.
"While the probability of Greece's exit from Euro zone in 2012 has declined after the outcome of national elections on June 17th, such an event cannot be entirely ruled out in case there are delays in the implementation of reforms insisted upon by the Euro zone," it warned.
India's GDP growth at 5.3% in the Jan-Mar quarter was even slower than the growth recorded during the global recession of 2008-09 and slowest since March 2003. The government expects the economy to grow higher by 7.6% in the current fiscal year on the back of likely rise in industrial production.
Crisil Research further said that a relatively aggressive monetary easing by the Reserve Bank of India is possible if the crisis in Euro zone deepens.
Earlier Monday, the RBI chose to keep the repo rate and cash reserve ratio unchanged, saying that reduction in policy rates at this point could exacerbate already high inflation rather than bolster economic growth.
The country's wholesale price index (WPI) inflation accelerated to 7.55% in May from 7.23% in April, which is above the RBI's comfort level.
However, "fiscal stimulus would be limited, given its likely adverse impact on fiscal deficit, interest rates and inflation," it added.
India's fiscal deficit to GDP ratio may accelerate to 6.3% in the current fiscal, if Greece exits the Euro zone, it said.
The government, in its Union Budget, has said that it aims to keep the fiscal deficit at 5.1% of GDP in this fiscal.
Industries like software and iron and steel will be impacted most if the crisis in Europe persists, it said.
India's exports fell 4.16% on-year to $25.7 billion in May, the government's provisional trade data released last week showed
However on a positive note, Crisil Research said that deterioration in Euro zone is likely to trigger sharp fall in oil and commodity prices, which will thereby ease pressure on India's soaring import bill and inflation.
Brent crude Friday fell to $88.49, the lowest since December 2010, before climbing above.
Copyright Contify.com
