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India braces for lower growth forecast ahead of polls

February 07, 2014 09:47 IST

India on Friday is likely to cut its estimate of 5 per cent growth forecast for the fiscal year that ends on March 31, thanks to a slower-than-expected recovery by industries.

Photograph: Arko Dutta/ReutersThe revision will do little to help the Congress party-led ruling alliance, which faces an uphill battle in elections due by May amid allegations of economic mismanagement, corruption scams and high inflation.

Last week, the Statistics Ministry revised down economic growth for the previous fiscal year to 4.5 per cent - the slowest pace during the decade Manmohan Singh has been prime minister - from an earlier estimate of 5 per cent.

The revised GDP data for 2013-14 fiscal year, ending March 31, will be released on Friday around 5.30 pm New Delhi time (1200 GMT).

Finance Minister P. Chidambaram is widely expected to announce measures including a cut in factory gate duties on some products to push up manufacturing output when he presents an interim budget for the coming fiscal year in parliament on Feb. 17.

The full-year budget will, however, be presented by the next finance minister after the elections.

Asia's third-largest economy grew at 4.6 per cent annually in the first half of the current fiscal year, down from 5.3 per cent in the corresponding period a year ago. Growth slowed in almost all sectors, including services such as tourism, transport and telecoms.

The hike in interest rates by the Reserve Bank of India to rein in near-double digit retail inflation - three times since Raghuram Rajan took charge in September - has also dampened chances of early economic recovery.

"Notwithstanding a favourable monsoon in 2013 and healthy agricultural performance, the pickup in rural demand has been uneven and weaker than expected," said Aditi Nayar, an economist at ICRA, the Indian arm of rating agency Moody's.

India's economy grew at more than 9 per cent annually for three straight years during the 2005-06 to 2007-08 period, before being hit by the global financial crisis and high interest rates amid a slower global recovery.

Slowing demand

This year, the government has cleared hundreds of much-delayed projects such as power plants, mines and ports, but the impact is expected to be visible only in next year's growth numbers, due to a time lag in actual investments.

Last week, the Reserve Bank of India in its quarterly review said the weakening of private consumption and investment demand had dampened prospects of a second-half pick-up in GDP growth.

Consumption, which contributes around 70 per cent to the near $1.8-trillion economy, is expected to grow 4.5 per cent in fiscal 2013-14, down from 5.2 per cent in the previous year, a Citi group research note said on Thursday.

Indian makers of durable goods such as washing machines, refrigerators and electronic items face a bad year, as output of these goods contracted 12.6 per cent during the period from April to November.

Annual car sales declined by about 5 per cent in the first three quarters, hit by high inflation, fuel prices and interest rates.

"Factoring in a pickup in agricultural growth to 5.0 per cent in the later half of this fiscal, ICRA expects Indian GDP growth in FY14 to come in towards the lower end of our forecast band of 4.7 per cent to 4.9 per cent in 2013/14," Nayar said.

Manoj Kumar in New Delhi
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