Growth forecasts cut after poor monsoon

Growth forecasts cut after poor monsoon

Mumbai: India’s economy will grow slightly less than expected this year as the weakest monsoon in nearly 40 years weighs on the agriculture sector, but growth will pick up next year in line with a global recovery, a Reuters poll shows.

Asia’s third largest economy is expected to grow 6.0% in the fiscal ending 31 March, the slowest in seven years and down from a forecast of 6.3% in a similar Reuters poll three months ago.

But analysts now expect growth in 2010-11 will accelerate to 7.5%, up from a previous forecast of 7.2% and boosting the chances of interest rate hikes next year. The government expects growth of 6.3% or higher this year, accelerating to around 7% in 2010-11.

The economy grew 6.7% in 2008-09, slowing from rates of 9% or more in the previous three years, as the global credit crisis and business slowdown hit harder than expected.

“Agriculture will certainly act as a dampener," said Rupa Rege Nitsure, chief economist at Bank of Baroda. “Though the direct impact of agriculture on the overall GDP (gross domestic product) growth is not much, the indirect impact on rural consumption, allied activities, services and industrial sector could be significant."

The June to September monsoon rains were 23% below normal, the weakest since 1972, and the prospect of smaller harvests pushed food prices up an annual 15.5% in late September.

Wholesale price inflation, the most watched price barometer in India, is forecast to accelerate from an average of 2.8% in 2009-10 to 6% in 2010-11 as economic activity picks up domestically and globally.

Analysts had expected lower levels of 2% and 5.5%, respectively, in the previous poll.

The poll forecasts interest rates will rise in the first quarter of fiscal 2010-11, a few months sooner than expected in the previous poll.