Rating agency Crisil has revised downwards the Indian GDP growth forecast for FY09 to 8.1 per cent, from the earlier 8.5 per cent, in view of the high inflationary conditions, interest rate and global growth outlook.
However, despite the growth deceleration, Crisil expects inflation to stabilise at an average 5.5 per cent in 2008-09 in a normal monsoon scenario, the agency said.
"Our earlier GDP forecast of 8.5 per cent had assumed a cut in the policy interest rate by the central bank in response to the slowing economy. This is now ruled out since current inflation and inflationary expectations are way beyond the RBI's comfort zone of 4.5 to 5 per cent," Dharmakirti Joshi, principal economist, Crisil said.
Inflation is expected to remain high in the next few months due to a continuation of global pressures and an unfavourable base effect. However, Crisil expects it to soften towards the end of the year and stabilise at an average of 5.5 per cent in FY'09.
"If monsoons are sub-normal and agricultural production falters, inflation scenario could worsen," it warned.
Nothwithstanding the moderation, the overall growth scenario is expected to remain strong with investment as the main driver.
"Domestic private consumption demand will also provide some support to the economy against slowing external demand," it said.