Deloitte Says Soor Monsoon to Slow GDP to 6-6.5 percent

Tuesday, 31 July 2012, 06:46 Hrs
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Bangalore: Global consultancy firm Deloitte  said India's economic growth will remain moderate in the coming quarters and expects GDP to be under 6.5 percent, citing poor monsoons and the sticky inflation.

"With poor rainfall so far, we see slower GDP growth and higher inflation. GDP is likely to grow between 6 and 6.5 percent this fiscal," Deloitte said in a report. Noting that the monsoon, crucial for agriculture, has been below average so far potentially impacting sowing season, the report said these are worrying signs, and growth projections have been lowered on multiple occasions.

However, this is still not the lowest projection, as many other agencies have pegged GDP growth below 6 percent with Morgan Stanley pegging it at 5.3 percent.

Following the renewed worries on the eurozone and soft-landing of China, coupled with domestic issues like policy indecisions and sticky inflation, the GDP had hit a nine-year low in FY12 at 6.5 percent. On impact of the poor rains on inflation, Deloitte said, "inadequate rainfall could lead to higher inflation and slower GDP growth. Poor growth in the agricultural sector could severely impact rural consumption, which could result in a magnified influence on the entire economy."

"With food prices contributing heavily to headline inflation, the monsoon will play a crucial role in determining inflationary trends in the coming quarters. Moreover, core inflation recorded double digit growth, suggesting that retail inflation remains elevated.

In addition, the economy confronts a host of supply- side bottlenecks that have led to considerably higher inflation. Inflation remains high, indicating that structural macroeconomic factors might need to be addressed rather than simply relying on monetary policy," it said.

The agency expects the already weak Indian currency to weaken further on the back of a subdued growth. "The rupee is expected to weaken further, given the muted growth prospects and widening current account deficit."

Source: PTI
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