New Delhi: Global research firm Moody's Analytics has cut India's gross domestic product (GDP) growth projection to 5.5% for 2012, citing inadequate action from the Indian government to support the flagging economy and deficit annual monsoons rains.
"India's potential growth is around 7.5%, and we expect the economy to rumble along at 5% to 6% to mid2013. The business sector has slowed, and fixed investment could be very weak, as firms see little reason to invest in extra capacity, weighing on both nearterm and longerterm growth," Moody's Analytics said in a report.
Moody's Analytics becomes the latest to join the bandwagon of rating agencies, which cut their forecast for India's economic growth earlier this week.
Citigroup and global brokerage firm CLSA reduced their growth projections for India to 5.4% and 5.5% respectively for the current fiscal 2012-13. Besides, CRISIL Ltd's Indian research unit Crisil Research also cut its growth forecast for India to 5.5% for this fiscal from its June forecast of 6.5%.
Moody's Analytics said that the string of government reforms carried out through the 1990s, which had boosted the country's growth above 8%, has stopped on account of "corruption scandals, poor electoral results, an obstinate coalition partner, and an obstructive opposition".
The government has failed to build political consensus on a number of fronts including rationalizing retail fuel prices, allowing higher investments into the organized retail sector, introducing reforms in the pension and insurance sectors, and meeting deadlines on bringing in tax reforms.
According to the report, the slowdown in Indian economy "has been sharper and more broad-based than anticipated and is now deeply entrenched across all sectors of the economy".
The Indian government needs to show "sustained pro-growth policies" before the research unit even starts considering it as "anything but a sizeable drag on economic activity," it warned, adding there were no "quick-fix" solutions to tackle the country's deteriorating growth situation.
Further, deficit in annual monsoon rains, lifeline to the farm dependent Indian economy, will also put some pressure on the country's growth, the report said.
Last week, India's weather office said that annual monsoon rains is expected to be 15% below average this year, although it refrained from terming the situation a drought.
The research unit also lowered its 2013 growth forecast for India to 6% from 6.2% earlier.
India's fiscal fourth quarter (Jan-Mar) GDP grew 5.3% on-year, slower than the growth rate achieved even during the recession period of 2008-09 and slowest since March 2003, hurt by contraction in manufacturing and slowdown in agriculture and services.