India cuts GDP forecast, blaming global weakness

This is because the continuing decline in nominal GDP growth and the excess dependency on private consumption and public investments to boost growth have now become matters of concern.

The Mid Year Economic Analysis released by the finance ministry has dampened hopes of a sharp and sustained recovery in the second half of the year by forecasting that overall GDP growth in 2015-16 would be in the 7-7.5% range.

Asia’s third-largest economy is now expected to grow 7-7.5 per cent in the fiscal year ending in March 2016, the finance ministry said in its mid-year economic review, down from an estimate of 8.1-8.5 per cent announced in February.

It said the decline in nominal GDP growth will pose a challenge for meeting the fiscal deficit target of 3.9 per cent of GDP.

While still among the fastest in the world, the pace is lower than the previous forecast of 8 percent as a gridlock in parliament stalls crucial bills and China’s slowdown jeopardizes global growth.

The report also made several qualitative observations about the state of the economy, saying that the economy continues to send “mixed signals” over growth and that all economic indicators were not yet aligned towards pointing to a higher trajectory of growth.

The government also said that an anticipated shortfall in disinvestment receipts will add to fiscal challenge. The review has raised questions over demand going ahead citing declining nominal GDP growth, making a case for reassessment of the fiscal and monetary policy.

For sustainable and rapid medium term growth, private sector investment and exports need to revive.

A proposed wage increase for government employees is set to add an additional 0.65 percent of GDP to expenditure.

The analysis said that in addition to robust growth, the year so far has witnessed macro-economic stability aided by favourable factors such as comforting inflation indicators, benign fiscal situation and improving external current account balance.