Despite an impressive performance in 2003-04, CRISIL on Thursday forecast a slowdown in the growth of the country's gross domestic product at 6.2 per cent for 2004-05 as against the estimated 8.5 per cent in FY'04.
"Agriculture is expected to grow at 9.67 per cent in FY-04. However, the "above trend" growth in the 2003-04 translates into a dip in the FY-05. Even if we assume a normal monsoon the farm sector is expected to show negative growth (-0.3 per cent) in 2004-05", CRISIL said in a release in Mumbai on Thursday.
However, the abundant production of commercial crops such as sugarcane and groundnut are expected to prop up the growth rate, the rating agency said.
Going forward, the spike in oil prices in the recent months is expected to mitigate, it said.
Industrial growth momentum would sustain in FY-05 and the sector would grow at 7.16 per cent. This would be aided by pick-up in private investment, high capacity utilisation, lower interest rates and increased internal cash accruals, it said.
The continued industrial recovery, positive fallout of "above-trend" growth in agriculture would retain momentum of the services sector and was expected to clock a growth of 8.6 per cent, CRISIL said.
Given the impressive performance in three quarters of 2003-04, the economy was expected to grow at 8.5 per cent in the previous fiscal as against 4.2 in FY-03, it said.
CRISIL said in a scenario of some decline in international oil prices but continuing buoyancy in prices of manufactured goods, the average inflation in FY-05 is likely to be five per cent with a downward bias.
The fiscal deficit as a percentage of GDP would slip by 0.4 per cent to 4.8 as against 4.4 per cent targeted in the interim Budget for 2004-05, CRISIL said.
Revenue performance was linked to the sectoral patterns of growth and lower GDP growth accounts for slippage in revenues and hence the deficit, it said.
The combination of high oil prices and strong imports of capital goods would mean growth of imports would outstrip exports and the trade deficit was likely to widen significantly over the year, it added.
Oil imports are expected to grow at 20-25 per cent over the year and non-oil imports at 20 per cent in FY-05. If oil prices harden further, there could be stronger pressures on the trade deficit, CRISIL said.
On the interest rate trends, the rating agency said the short-term rates are expected to soften while that at the long-end of tenor may harden by 0.50 per cent over the year, it said.
In the short to medium term, the Rupee would continue to show trend of appreciation and was likely to trade at 43-44 against the US dollar in the next six months, CRISIL said.
Over the long term, if US dollar stages recovery against major currencies, then this itself should constrain rupee appreciation and it was expected to trade in the 44-45 range, it added.
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