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Citi paints a grim picture of India's GDP

Last updated on: August 10, 2012 17:16 IST

Citi paints a grim picture of India's GDP

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India's economic growth could fall below 5 per cent in the the first quarter of current fiscal, impacted by contraction in industrial output and deficient monsoons, global research firm Citi has said.

"The (industrial) production numbers will have a bearing on the 'value-add' industry numbers for Q1 FY'13 GDP. This coupled with sub-par monsoons and the deceleration seen in some of the service sectors could result in a sub 5 per cent Q1 FY'13 GDP," Citi said in its 'India Macro Flash' report.

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Image: Reuters

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Citi paints a grim picture of India's GDP

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Data released on Thursday said industrial output in the first (April-June) quarter contracted by 0.1 per cent, against a healthy 6.9 per cent growth in the corresponding period last fiscal.

For the month of June, IIP declined by 1.8 per cent, against a growth of 9.5 per cent a year ago.

Besides, rain has been 20 per cent lower during June-July, affecting kharif crops, mainly coarse cereals and pulses.

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Citi paints a grim picture of India's GDP

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Karnataka, Gujarat, Maharashtra and Rajasthan are facing drought-like situation.

Last week, the Met department said the monsoons will be below normal by 9-10 percent of the long period average. Monsoon is the life-line of the agriculture sector as only 40 per cent of the cultivable area is irrigated.

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Citi paints a grim picture of India's GDP

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The Reserve Bank of India in its policy review last month had kept key interest rates unchanged but cut its growth expectations for the fiscal to 6.5 per cent from the earlier 7 per cent, blaming high fiscal deficit, sticky inflation and a possible drought.

"On rates, while we lowered our rate cut call to 50 basis points, given the RBI's stance on inflation, we re-iterate that rate actions are contingent on 'some' government action," Citi said.

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Citi paints a grim picture of India's GDP

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It said while on the production side the deficient rainfall will likely take its toll on agriculture and could have a knock-on impact on both industry and services, on the expenditure side, investment decline is a cause of concern.

Analysts feel the worsening economic situation will put pressure on the Finance Minister to quickly move ahead with the initiatives announced by him earlier this week.

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Finance Minister P Chidambaram had said the government will converge on the (Mahatma Gandhi National Rural Employment Guarantee Act) and other schemes to meet the challenges of drought-like situation in several states and enhance imports of commodities in short-supply to control price rise.

This week, Citi as well as CLSA, Crisil and rating agency Moody's had trimmed their annual growth forecast for the Indian economy.

"The global economic slowdown and domestic policy missteps are weighing on confidence and demand," Moody's had said.




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