Mumbai: Bank of America-Merrill Lynch (BofA-ML) has lowered its growth forecast for Indian economy to 8.2% in the next fiscal year, saying it expects surging oil prices to push input and borrowing costs higher.
Slower US economic growth may also impact India, the brokerage said in a research note on Wednesday.
BoFA-ML is the second major brokerage in as many days to cut India’s 2011/12 growth forecast. It had earlier expected Asia’s third-largest economy to grow at 8.5%.
The gross domestic product (GDP) forecast cuts by the two brokerages are in contrast with the government’s projections.
In its annual budget last week, the federal government said it expects India’s economy to grow at 9%, plus or minus 0.25%, in the next financial year.
“We revise our macro numbers after our oil analysts pushed up their FY12 Dated Brent forecast up to US$105 per barrel from US$89 a barrel and our economists cut 2011 US growth by 30 basis points to 2.8%,” the brokerage said.
Morgan Stanley on Tuesday cut India’s growth outlook in the next fiscal year that begins in April to 7.7% due to slower-than-expected domestic demand growth.
Given the uptick in global crude oil prices and assuming an increase in domestic retail prices of diesel of around 10%, BofA-ML expects 2011/12 inflation to be 7.0% against 6.3% earlier.
The wholesale price index , the country’s main inflation gauge, rose an annual 8.23% in January, slower than December’s 8.43% increase.
The rise in government’s subsidy costs due to a possible fuel price hike may push the government’s fiscal deficit to 4.7% against a budget estimate of 4.6%, BofA-ML said.
Many economists have also said India’s budget plan to cut its fiscal deficit to 4.6% of GDP in the next fiscal year, from an expected 5.1% this year, looks optimistic.