India lowers growth forecast

New Delhi : India lowered its forecast for the current year’s economic growth yesterday before a federal budget is released next month, as businesses were hit by the chaotic launch of new nationwide tax last July.

Finance Minister Arun Jaitley had earlier estimated the economy would grow around 7.5 per cent in the 2017/18 fiscal year, generating enough tax to keep the fiscal deficit at 3.2pc of GDP after meeting spending targets.

Gross domestic product is now estimated to grow an annual 6.5pc in 2017/18, slower than a provisional 7.1pc growth in 2016/17, Ministry of Statistics said in a statement.

Most private economists have pared the growth forecast to 6.2 to 6.5pc for this fiscal year, citing the teething troubles faced by businesses during the roll out of a goods and services tax (GST).

“The GST transition impact is clearly visible,” said Shubhada Rao, chief economist at Yes Bank. Sectors such as manufacturing and hotels were badly hit, she said.

Complex rules and technical glitches meant the GST, aimed at transforming India’s 29 states into a single customs union, hit millions of small businesses.

Manufacturing is now forecast to grow at 4.6pc this fiscal year compared with 7.9pc growth in the previous year, the statement said. Farm output may slow to 2.1pc from 4.9pc.

Finance ministry officials earlier said slower economic growth was likely to hit revenue collections this year, forcing them to resort to borrow from the market to meet spending targets.

Analysts said despite the lower economic growth, the Reserve Bank of India (RBI) was expected to hold policy rates steady after a recent uptick in retail inflation, which touched 4.88pc in November, its steepest level in 15 months.

“Given the recent uptick in inflation pressure and with inflation likely to remain around 5pc going ahead, we expect the RBI to be on hold with a guarded stance even though growth estimate has disappointed slightly,” Rao said.

The statistics office will release economic growth data for the October-December quarter on Feb. 28, along with revised full-year growth estimates.