Icra lowers GDP growth forecast to 5.4%

"Given the absence of a pick-up in private investments despite an improvement in sentiment, low transmission of reduction in cash reserve ratio since September, expectations of a back-ended cut in the repo rate and moderation in consumption, we lower our GDP forecast to 5.4 percent from 5.7 earlier," Icra said in a statement.

Besides, it said that it expects the Reserve Bank to cut lending rates by 25 basis points at the forthcoming mid- quarter review on December 18.

Icra further said it expects fiscal deficit to be at 5.6- 5.7 per cent, up from the government's forecast of 5.3 per cent of GDP.

"Assuming that fuel subsidies for the last quarter are released in FY'14 and disinvestment proceeds amount to Rs 20,000-25,000 crore this year, the fiscal deficit is expected to be around 5.6-5.7 per cent. We expect the slippage in fiscal deficit relative to the Budget estimates to be funded by an enhancement in the announced long-term market borrowing programme for the last quarter by Rs 40,000-50,000 crore," it said.

Besides, Icra said it also expects higher current account deficit, due to a weak currency and lower manufacturing due to lack of power supplies.

"We have revised our expectation of the current account deficit to USD 70 billion or 3.8 percent of GDP, slightly higher than our previous forecast of USD 69 billion or 3.7 percent," it said. It expects the wholesale price index inflation to average at 7.5-7.7 percent for the fiscal.

"A weaker rupee and a generalisation of inflationary pressures related to high food prices would result in core inflation remaining firm," it said.

The macroeconomic situation remains clouded despite the recent reform measures, Icra said. "Although measures such as the revision in diesel prices and easing of norms for foreign direct investments in various sectors initiated since September have boosted sentiment and strengthened the rupee, the currency has weakened sharply in the past month, adding to macroeconomic uncertainties."

The report further said the poor monsoons will affect agriculture growth and it is likely to be low in the second half.

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