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Wednesday, 08 August 2012 00:00
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Crisll cuts GDP to 5.5%, all eyes on Parliament

The monsoon clouds may be thinning, but they continue to thunder. With the Indian Meteorological Department finally saying India will have a 15% shortfall in June to September, rating agency Crisil has sharply cut its FY13 GDP forecast to 5.5% from 6.5% earlier. According to Crisil, with the rain deficiency in FY13 nearly as bad as it was in FY09, there will be no agriculture growth this year—the earlier forecast was a 3% growth. Combined with the impact this will have on demand and therefore industrial production, Crisil projects a 0.7 ppt cut coming from this source alone. The rest, 0.3ppt, comes from the impact of slowing exports growth due to the continuing recession in Europe. Crisil does not make any projections on the impact of a deepening European crisis on financial markets. A 5.5% growth makes Crisil’s the lowest GDP projection till date. So far, Citi’s June projection of 6% in case of a weak monsoon and 5.6% in case of a bad monsoon has been the lowest—in a bad monsoon scenario, however, Citi forecasts a 3% contraction in agriculture GDP.

With a sharply lower GDP estimate, Crisil is looking at a fiscal deficit of 6.2% of GDP, up sharply from its earlier forecast of 5.8% and the budget’s estimated 5.1%. In other words, if Crisil is right, there is no scope for any kind of fiscal stimulus. Which is why finance minister P Chidambaram is talking of improving the investment climate by re-looking at the retrospective taxation, GAAR and other such measures. While Chidambaram has indicated he will try and convince RBI to cut interest rates to stimulate investment, this looks unlikely given the sharp price hike that a monsoon failure will necessarily entail. The government clearing RIL’s KG Basin investments for the next three years—albeit after the firm indicated supplies could dry up in a few years—on Tuesday is a part of it trying to fix the investment climate. A lot now depends upon Parliament, not just on which bills it clears, but whether it is prepared to accept sensible changes in them. The Land Bill, as it stands today makes it nearly impossible for private industry to acquire any land—apart from costs going up 3-4 times and R&R costs also likely to rise by a similar amount, there are too many restrictions on acquiring agriculture land; moreover, government cannot help the private sector, including PPP projects, acquire land. Apart from the Companies Bill, the other bill that everyone will be watching with bated breath is the Banking Amendment one since, once this is cleared, RBI can finally start the process of giving out bank licenses. Now if only Parliament will be allowed to function.


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