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India Forecasts Lowest Growth in Decade, Sees Scope for Rate Cut

Photographer: Brent Lewin/Bloomberg

Construction for a new Rapid MetroRail Gurgaon Ltd. station stands in Gurgaon, India. Close

Construction for a new Rapid MetroRail Gurgaon Ltd. station stands in Gurgaon, India.

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Photographer: Brent Lewin/Bloomberg

Construction for a new Rapid MetroRail Gurgaon Ltd. station stands in Gurgaon, India.

India’s economy may grow at the slowest pace in a decade in the current financial year, according to forecasts by the Finance Ministry, which predicts inflation will slow enough to allow interest-rate cuts.

Asia’s third-largest economy may expand about 5.7 percent to 5.9 percent in the year through March, less than an earlier estimate of as much as 7.85 percent, the ministry said in a mid- year review presented in Parliament today. That would be the smallest gain since the year ended March 31, 2003, when gross domestic product grew 4 percent.

The Reserve Bank of India, which decides on monetary policy tomorrow, has so far resisted calls from Finance Minister Palaniappan Chidambaram for lower rates, opting to keep the repurchase rate at 8 percent to damp inflation in October while reducing the cash reserve ratio. To revive confidence in an economy with one of Asia’s worst performing currencies this year, Prime Minister Manmohan Singh in recent months pushed through policy overhauls to allow more foreign investment in retail and curbed energy subsidies.

“Both fiscal and monetary policies, however, would need to be supportive to sustain investor confidence,” the ministry said. A moderation in inflation that may commence in the January-to- March quarter and benign global commodity prices will “facilitate softening of the monetary policy stance of the RBI,” it said.

Inflation at the end of March will probably moderate to 6.8 to 7 percent and the budget deficit will be contained at 5.3 percent of GDP, the Finance Ministry said.

To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net; Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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