cent for 2008-09 from the earlier forecast of 8.5 per cent in view of
the worsening inflation, interest rate and global growth outlook.
Despite some moderation, the overall growth scenario is expected to
remain strong with investment as the main driver, said the Crisil
report.
Growth for sectors such as industry and services has also been
adjusted downwards to 8 per cent and 9.8 per cent respectively.
Agriculture sector will grow at 3 per cent assuming a normal monsoon
this year.
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As the current inflationary expectations are way beyond the Reserve
Bank of India's comfort zone of 4-5-5 per cent, a cut in key interest
rates has been ruled out, said the report. Also, the recent scaling
down of global growth projections has led to revising growth
projections downwards for 2008-09.
High commodity prices
The report said that inflation would remain high in the next few
months due to high commodity prices globally. But it would moderate to
5.5 per cent closer to March 2009, if the monsoon is normal.
Conversely, if monsoons are sub-normal and agricultural production
falters, inflation scenario could worsen.
Dharmakirti Joshi, Principal Economist, Crisil, said: "Good monsoon
means good supply of commodities such as rice and wheat, which will
help in easing high prices. But the moment we falter on agriculture,
the pressure on prices will be huge. In any case, our agri products
prices have not shot up as much as the global prices."
He added, "Edible oil is the only problematic area as 50 per cent of
the oil is being imported. But the Government has already cut the duty
on import of edible oil."
The hike in CRR by the RBI is not likely to help current inflation,
but it will help control inflationary expectation, said Joshi.
No interest hike
Ruling out a hike in key interest rates like the repo rate, Joshi
said, "A hike in repo rate will reduce demand and reduce GDP growth.
But the economy is already slowing down. Therefore, we do not expect a
hike in repo rates unless the RBI believes that there is need to
slowdown the growth faster."
The report has also revised the forecast on fiscal deficit for 2008-09
upwards to 3.9 per cent of GDP, against 2.5 per cent as estimated in
the Budget.
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Joshi said, "The Budget had not taken into account the impact of the
Sixth Pay Commission and the farm loan waiver. Also, the oil and food
subsidies are higher. The Government has also reduced the custom and
excise duties, due to which revenues from tax collection will fall."
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