India growth story slows on weak global demand, drought

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Weak global demand and deficient rainfall leading to drought has forced India to lower its full year economic growth even though it could be the world’s fastest growing large economy following China’s slowdown.

The 2015-16 full year economic growth forecast was cut to 7-7.5 percent from the 8.1-8.5 percent announced in February, the finance ministry’s mid-year economic report said. The downgrade came after the economy grew 7.2 percent in the first half of the 2015/16 fiscal year.

The government, however, said in the report that it would stick to its aim of narrowing the fiscal deficit to 3.9 percent of GDP, an eight-year low. “Slower than anticipated nominal GDP growth will itself raise the deficit target by 0.2% of GDP,” the report said.

“The anticipated shortfall in disinvestment receipts, owing to adverse market conditions for a portfolio that largely comprises commodity stocks, will add to the challenge.” It said it expected inflation to be about six percent at the end of FY2016.

The finance ministry said in the report that slowing demand for Indian merchandise overseas had hit growth as exports, which account for about a fifth of India’s US$2 trillion economy, had fallen over the past 12 months.

Reserve Bank of India (RBI) Governor Raghuram Rajan has set a target for consumer inflation of five percent by March 2017 and four percent in the medium term.

Despite the slashing of the expected growth rate, India might well be the world’s fastest growing economy as the Chinese economy keeps faltering.

 

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