With international commodity prices remaining high and a deficient monsoon, the Reserve Bank of India on Tuesday scaled down its economic growth forecast for 2004-05 to 6-6.5 per cent from the earlier estimates of 6.5-7 per cent and said the estimated agricultural growth of 3 per cent would not materialise due to lower Kharif output.

"Growth in GDP is likely to be less than originally projected mainly due to deficient monsoon conditions and partly due to high and volatile oil prices, despite a better than anticipated outlook for manufacturing industry and export demand," the RBI said in mid-term review of its annual policy.

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It may be reasonable to place the overall GPD growth for the year 2004-05 in the range of 6-6.5 per cent as against the earlier expectation of 6.5-7 per cent, assuming that the combined downside risks of high and uncertain oil prices, and sudden changes in international liquidity environment remain manageable, the central bank said.

While the Central Statistical Organisation estimate for GDP for the first quarter is consistent with the earlier projected growth of 6.5-7 per cent for the full fiscal year, the deficient rainfall in some parts of the country and its impact on Kharif crop imparts a downward bias to this projection, it said, adding that higher oil prices tend to have an adverse impact on GDP growth.

At the same time, the improved prospects for growth in industrial output and continued buoyancy in exports are likely to have a positive impact on the growth, it said.

The CSO data for the first quarter of 2004-05 shows that real GDP increased by 7.4 per cent as against 5.3 per cent in the first quarter of the previous year.

The central bank said output of Kharif crops this year may be lower than the corresponding levels last year, but anticipated the rabi output would be favourable.

"While the prospects are still somewhat unclear, the current assessment clearly indicates that agricultural growth of three per cent projected earlier, will not materialise," the RBI said.

However, there are indications that industrial output may have improved with signs of sustained growth in production of basic goods, capital goods, intermediate goods and consumer durables.

The index of industrial production increased by 7.9 per cent during April-August 2004 as against 5.9 per cent during same period year ago and the index of six major infrastructure industries increased by 5.6 per cent during April-August 2004 as compared to 4.2 per cent a year ago.

The RBI said various business expectation surveys, including its own assessment, point to a reasonable air of optimism regarding growth.