Business

GDP forecasts head south as monsoon falls short

  • Radhika Pancholi and Devraj Uchil, Hindustan Times, Mumbai
  • |
  • Updated: Aug 10, 2009 09:34 IST

Two respectable agencies, credit rater CRISIL and the Centre for Monitoring Indian Economy (CMIE) signalled on Monday that a shortfall in monsoon rains seemed set to hit agricultural output, in turn affecting GDP growth, industrial demand and inflation.

CRISIL said production of rice, pulses and coarse cereals are most affected. “Six states that account for 47 per cent of the total kharif foodgrain production and 46 per cent of the total kharif rice production in India have been affected by the poor rainfall,” said Dharmakirti Joshi, principal economist CRISIL, referring to Uttar Pradesh, Madhya Pradesh, Maharashtra, Andhra Pradesh, Bihar and West Bengal.

“We now expect the GDP to grow by 5.8 per cent in 2009-10 compared to 6.6 per cent expected earlier,” CMIE said in a report. Investment bank Goldman Sachs has also predicted GDP growth at 5.8 per cent on the back of a weak monsoon.

“The lower rainfall projections will likely lead to negative agricultural growth. We retain our FY10 GDP growth forecast of 5.8 per cent, and think that consensus forecasts of 6.3 per cent, and the Prime Minister’s Economic Advisory Council’s forecast of 7 per cent look a bit rich,” said Tushar Poddar, chief economist, Goldman Sachs India.

“Rural demand will be negatively impacted, and this is a significant negative shock for the equity market,…” said Poddar.

 “While the overall national agriculture is not at risk as was in 2002, some states definitely face a grave situation. This will definitely shave off some part of the GDP. Food inflation, which is already pressurised will face further pressure due to poor rainfall,” CRISIL said in a monsoon update.

CMIE said production of sugar and edible oils will fall by 3.6 per cent and 2.5 per cent, respectively, adding industrial production will now grow by 4.8 per cent during 2009-10 compared to 5.1 per cent estimated earlier.

 

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