Citi maintains India's GDP rate at 5.8%

A day after the Prime Minister's Economic Advisory Council said that India's GDP may grow by 6.75 per cent in the current fiscal, global financial major Citi on Thursday maintained its forecast at 5.8 per cent.

"We maintain our FY'10 GDP estimate of 5.8 per cent, given that winter crop sowing has not yet begun and the outlook for agriculture remains cloudy," Citi said in its Global Economic Outlook and Strategy.

The Prime Minister's Economic Advisory Council, headed by former Reserve Bank Governor C Rangarajan, had said that it was unlikely that the GDP growth rate would be lower than 6.25 per cent for the current fiscal; buy might reach 6.75 per cent despite the adverse impact of monsoon on farm sector output.

The monsoon season for the current year turned out to be the worst in over a decade with the rainfall was at 77 per cent of the Long Period Average of 89cm; below the IMD's forecast of 93 per cent, Citi said.

"However, incremental data (industrial production, auto sales, PMI) continue to post positive surprises. Recent industrial production numbers indicate that government stimulus measures could offset the impact of negative agriculture growth," Citi said.

The Reserve Bank in July had projected India's GDP growth rate at six per cent with an upward bias. India's economic growth slowed down to 6.7 per cent during 2008-09, from over nine per cent recorded in the previous three years, on account of global financial meltdown.

"We expect policy rates to be raised by a cumulative 125 bps during 2010. However, given ample liquidity, we could see indirect tightening (possibly via a CRR hike) take place in the coming months," Citi said.

Bond yields would likely be capped at 7.5 per cent due to relatively muted credit growth and the RBI's continued participation in the borrowing programme, Citi said.