Citigroup Slashes India’s Growth Forecast to 7.1 Percent

In a recently released report, Citigroup has negatively revised its earlier growth estimates for India, for the Fiscal Year 2011-12, amid a slowing global economy and domestic headwinds. The investment bank expects the third-largest economy in Asia to grow at 7.1 percent in the current fiscal year ending in March; the figure is lower than its previous estimate of 7.6 percent.

In addition to global factors, domestic issues should take a toll on growth in India, Rohini Malkani, an economist with Citi India, said. The organization's report also highlighted domestic issues, including supply-side bottlenecks in the coal and power sectors and the lagged impact of monetary tightening, as taking a toll on domestic growth. The Reserve Bank of India (RBI) expects the country's economy to grow at 7.6 percent, lower than its earlier projection of 8 percent.

Citigroup also cut growth estimates for Fiscal Year 2012-13 to 7 percent from 7.5 percent. The Indian economy probably grew an annual 6.9 percent in the quarter through September, at its weakest pace in more than two years, the median forecast from a poll of 22 economists showed.

Unfortunately, India has less manoeuvrability relative to the 2008 pullback given its increased fiscal constraints, elevated levels of inflation and government decision-making, the report said. In October, India's wholesale price index remained above 9 percent for the 11th month.

Citigroup said it expects inflation to remain at over 9 percent till the end of 2011 and average only 7.5 - 8 percent in 2012. It also expects the fiscal deficit to widen to between 5.1 and 5.8 percent of the Gross Domestic Product in the Fiscal Year 2011-12, higher than the targeted 4.6 percent.