Bad news for India's economy

Farmers have been hit by poor rains

By Sanjeev Srivastava in Bombay

An independent economics think-tank has forecast lower growth for India, just a day after a similar projection by the country's central bank.

The Centre for Monitoring Indian Economy (CMIE) revised its GDP growth estimate for the current year from its earlier forecast of 7% to 5.8%.

And the international credit rating agency Standard & Poor's has also downgraded its outlook on India.

On Tuesday, the Reserve Bank of India scaled down the country's GDP growth rate by 50 points for the current financial year.

The CMIE has also cut its growth estimates for the agriculture, industrial and services sectors.

Not everything going according to plan

The think-tank blamed a poor spell of rain in September for the less than expected growth in the farm sector.

Sluggishness in the agriculture sector in turn had affected industrial output, it said in its survey.

The CMIE also expressed concern about the rise in oil prices, which it said could push up the average inflation rate to 8%.

Downgrade

Meanwhile, the international credit rating agency Standard & Poor's also downgraded India's long-term foreign currency credit rating to "stable" from "positive".

The rating agency had upgraded the outlook on India only six months ago.

Indian officials are not happy with the downgrade

Standard & Poor's said the revised outlook was the result of the Indian Government's inability to accelerate the pace of economic reforms.

India's chief economic advisor Shankar Acharya disagreed with the assessment, saying economic reforms were "going forward".

The move came a day after the State Bank of India announced plans to launch a millennium deposit scheme targeting non-resident Indians, in which the currency exchange risk is largely to be borne by the government.

The CMIE report and the S&P downgrade also cast a pall of gloom on the Indian stock markets, already depressed by the continued sell-off on the US tech exchange, Nasdaq.

In early trades on Wednesday, the Bombay stock exchange index slipped to 3803 points, a new 52-week low, before recovering about 50 points in the afternoon trades.