Indian Government Lowers Growth Estimate For FY2012

India’s government lowered the country’s economic growth forecast for the fiscal year 2012 indicating that it is in need of stimulus measures to boost the weakening economy.

According to the mid-year economic review released Monday by the Finance Ministry, India’s economy is expected to expand between 5.7 and 5.9 percent for the fiscal year 2012, down from the earlier estimate of 7.6 percent.

Investors worry that even this rate can turn out to be too optimistic with the global economic condition worsening, which will have a significant negative impact on the output, inflation and budget. Earlier last month, Finance Minister P Chidambaram said that this year’s economic growth in India would be only in the range of 5.5-6.0 percent.

This news comes after it was reported last week that India’s industrial output surged in October, better than expectations. According to data released Wednesday by the Ministry of Statistics and Programme Implementation, India’s industrial production, which measures the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities, climbed to 8.2 percent in October from 0.7 percent decrease in September.

Also, last week, it was reported that India’s Wholesale Price Index (WPI) rose at a slower rate in November than in the previous month, showing signs of a gradual decline in price pressure to make room for monetary easing. According to data released last week by the Ministry of Commerce and Industry, India’s WPI, which measures the change in the price of goods sold by wholesalers, dropped to 7.24 percent in November down from 7.45 percent in October.

The decreasing inflation should be good news because it allows the government to boost growth measures without much concern about the rising prices. Moreover, instead of inflation, the most urgent concern for India appears to be its pro-growth policy stance against the current uncertain global situation.

Market participants are looking forward to the Reserve Bank of India’s policy meeting on Dec. 18. Amid the growing concerns of deteriorating growth prospects of the country's economy, market players are calling for urgent policy easing measures from the central bank.

The RBI has already cut its growth forecast for this financial year (April-March) from 7.3 percent to 6.5 percent. Inflation may no longer be the main concern of policymakers and the government may have more room to ease monetary policies and make supporting of economic growth a priority.