FY12 growth at 8.1%, but monsoon failure could dip it to 7.6% | business | Hindustan Times
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FY12 growth at 8.1%, but monsoon failure could dip it to 7.6%

business Updated: Jun 05, 2011 16:20 IST

Global banking and research giant Citigroup has said that while it expects India's economy to grow by 8.1% in 2011-12, a failure of monsoon could bring down the growth rate to as low as 7.6%.

This is far below the 8.5% expansion in the Gross Domestic Product (GDP) achieved during the last fiscal and also below the 8% growth projection for 2011-12 made by the Reserve Bank in its annual monetary policy.

"We expect headline growth to slow to 8.1% in FY12... A less than favourable monsoon could result in agri growth being flat over FY 11 levels and consequently headline GDP growth coming in at 7.6%," Citi Investment Research and Analysis said in its 'India Macro Flash'.

A sharp recovery in farm output helped the Indian economy register a growth of 8.5% in 2010-11, up from 8% in the previous fiscal.

Agriculture and allied activities expanded by 6.6% in the last fiscal as against a meagre rise of 0.4% in 2009-10.

Citi said it expects agriculture to grow by 3% this fiscal but failure of monsoon could play havoc.

"...there are conflicting reports on the outcome of the 2011 monsoons," it said.

The onset of the South-West monsoon was well on schedule, reaching Kerala by end of May, and so far it has been normal.

The growth story received a slight jolt in January-March quarter of 2010-11 when the economy witnessed a slowdown and registered a growth of only 7.8%, mainly on account of poor performance by the manufacturing sector. This was the slowest GDP growth in five quarters.

Experts have said that economic growth is likely to remain slow during next few months on account of inflationary pressure and rate hikes.

Headline inflation has been above 8% since January 2010 and stood at 8.66% in April this year.

RBI has already hiked its key-policy rates nine times since March 2010 to curb demand and tame inflation and more rate hikes are expected during the rest of the fiscal.

Experts had blamed high inflation and the resultant rate hikes as the reason for slowdown in the manufacturing sector. Rising interest rates and input costs of commodities have led to a slowdown of investments in the manufacturing sector.

Six core infrastructure industries -- crude oil, petroleum refinery products, coal, electricity, cement and finished steel -- reported a growth of mere 5.2% in April as against 7.5% in the year-ago period.

Citi said in the event of a normal monsoon and continuing high domestic consumption, the Indian economy's growth would be 8.1% in 2011-12.