The Hindu : Business : ICRA lowers economic growth forecast

Online edition of India's National Newspaper
Wednesday, Nov 10, 2004

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Business

ICRA lowers economic growth forecast

By Our Special Correspondent

NEW DELHI, NOV. 9. While expressing optimism on the performance of the manufacturing sector and the services sector, credit rating agency ICRA (Investment Information and Credit Rating Agency) today lowered its forecast for economic growth during 2004-05 to 6.3 per cent from the earlier projection of 6.5 to 6.7 per cent owing to an expected dip in the farm output. It has estimated a one percentage point decline in growth from the farm sector owing to the deficient monsoon leading to a smaller kharif crop.

In its latest report on the economy, ICRA has pegged the overall economic growth at 6.3 per cent with industry at a buoyant 7.6 per cent and services at 8.8 per cent, bring the entire non-agriculture sector to 8.4 per cent. "Manufacturing output growth has averaged 8 per cent for the calendar year 2004 and we expect that its GDP counterpart would approximate this value for the complete fiscal year 2004-05,'' it says.

On the reason for the change in its projection, the agency says the earlier estimates had taken into account a small expansion of about 1.7 per cent in agriculture. Confidence in the mounting strength in manufacturing and other industries as well as in the services sector was, however, the primary reason given to up the forecast in July. "Compared to conditions then, we have further upped our estimate of growth from the non-agricultural sector from 8 to 8.4 per cent while building in a likely contraction in the agricultural sector,'' it says.

Regarding the agriculture sector, it has noted that this year a large part of shortfall in precipitation was in the Indo-Gangetic belt, that was otherwise well-watered and irrigated. "Hence while an adverse impact of a sub-normal monsoon is inevitable, the magnitude should be milder than (say) in 2000-01,'' it added. On the industrial sector, it says a quick look at the statistics available till September indicates a strong growth in all categories.

In a comment on soaring world oil prices and the impact on the domestic economy, ICRA has estimated that the oil import bill may rise by 50 to 55 per cent during 2004-05. As against $20.6 billion in 2003-04, the cost of oil imports may climb to as much as $30-32 billion. This is despite assuming some continued demand moderation in the second half of the financial year. "Given that further increases in domestic prices are inevitable, higher prices are bound to negatively impact demand growth in the last five months of the fiscal year,'' it notes.

ICRA has also expressed confidence that if the foreign direct investment proposals made in the budget are implemented, there could be a sizable increase in FDI inflows in the rest of the year. It notes, however, that FDI flows had been weak in the beginning of last year and to that extent the inflow to date in the current year is still relatively modest. Fresh net FDI inflows in the fiscal up to July this year stood at $1.6 billion which is a significant increase from the $400 million in the corresponding period of last year.

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