Crisil trims GDP forecast to 4.8%; fiscal gap at 5.2%

Credit ratings agency Crisil on Wednesday cut India's economic growth estimate to 4.8 per cent for the current fiscal and said agriculture is the only hope for higher rate of expansion in this period of downturn.

Its earlier gross domestic product estimate for 2013-14 was 5.5 per cent.

The agency also warned the government of overshooting the fiscal deficit target at 4.8 per cent due to poor revenue growth and pegged it at 5.2 per cent this fiscal.

"GDP growth for FY14 will come at a decadal low of 4.8 per cent because of the host of issues which we are facing at present," Crisil managing director and chief executive Roopa Kudva told reporters in Mumbai.

"I think we are at the bottom but a rapid recovery from here is unlikely.

“It will be an L-shaped recovery from here on," she added.

Kudva said however that agriculture, on the back to good monsoons, holds the potential to push the overall GDP growth number to up to 5.2 per cent.

"We are expecting agriculture to grow by 4.5 per cent this fiscal, which is double that of last year.

“However, if this number goes up to 6 per cent, the overall GDP growth will get pushed to 5.2 per cent," Kudva said, adding that rural consumption will also be a big push for growth.

Crisil expects tractor sales to grow 16-18 per cent as against last year's de-growth of 2 per cent and two-wheeler sales to go up to 4-6 per cent as against the 2.9 per cent last fiscal.

The economy grew by 5 per cent in 2012-13 driven down by a slew of factors such as weak external demand, expenditure cuts by the government to meet the fiscal deficit targets, dip in agricultural growth due to poor monsoons, high interest rates and a perceived policy paralysis.

A widening current account deficit, which touched an all time high of 4.8 per cent in the previous fiscal, has resulted in a dip of over 20 per cent in the rupee this fiscal, which only

compounds the worries on the growth front.

Kudva said Crisil expects the CAD to narrow up to 3.6 per cent due government measures on imports taken in the recent past and the overall uptick in the developed world, which has the potential to lift up the rupee to the 60 level by March.

The domestic currency has been extremely volatile in the recent past and hit an all-time low of 68.80 to a US dollar last month.

It has strengthened since then and closed today at 63.38 per American unit.

On the other hand, Crisil said it expects bad news on a majority of other macroeconomic parameters -- the industrial production to hit a two decade low, government's inability to meet the fiscal deficit target and inflation staying higher which will limit RBI's scope to cut rates.

Kudva said Crisil was of the view that industry will grow at a meagre 1 per cent this fiscal, which will be the worst in two decades and added that infrastructure, capital goods, real estate and transport operators will be the worst hit.

The rating agency said that due to poor industrial growth and the general slowdown, the government is unlikely to meet its revenue targets of 19 per cent growth and hence will end up not meeting the fiscal deficit target of 4.8 per cent, but will balloon to 5.2 per cent.

Crisil Chief Economist D K Joshi said the government can rein in the number only by cutting its expenditure, as it did last fiscal, but said such a proposition is unlikely this fiscal.

It expects inflation to be elevated at 6.2 per cent this fiscal, which will limit the RBI's options to increase the interest rates, Kudva said.

Stating that the larger companies are most vulnerable to the ongoing stress, she said demand slowdown, forex volatility, level of indebtedness and its ability to service debt and liquidity pressures will be the factors of stress to watch out for during the fiscal.

Basing its analysis on 2,481 investment-grade companies, she said more than the forex volatility, it is the demand slowdown which is hurting the corporates more.