Reason: Weak industrial growth.
Ratings firm Ind-Ra on Thursday revised downwards to 7.7% India's GDP growth forecast for the current financial year, from 7.9% earlier, due to weak industrial growth.
"Despite favourable prospects for agriculture due to an above normal monsoon, industrial recovery is proving to be a drag on the FY17 growth prospect," India Ratings and Research (Ind-Ra) said in a report here.
Recovery continues to be fragile and this is getting reflected in the monthly Index of Industrial Production data, it said, adding that IIP in 2015-16 fiscal, till February, has grown by just 2.6%.
It said: "While the government's initiatives such as 'Make in India', 'Digital India', 'Start Up India, Stand Up India' and 'Ease of Doing Business' have created buzz and projected India as an important destination for manufacturing activity, it will take a while before they translate on the ground." India Meteorological Department (IMD) had predicted that there are 94% chances of country receiving "normal to above normal" rainfall, while there is only 1 per cent probability of "deficient" rainfall this year.
Resilience of the country's agriculture has increased over the years, and it no longer witnesses a sharp decline in output and gross value added (GVA) in the years of a sub-par monsoon, Ind-Ra said.
As the downside to agriculture has reduced due to a sub-par monsoon so has the upside to agriculture with a favourable monsoon, it said.
It said private investment is still down and out due to lack of demand, suboptimal capacity utilisation and cheap imports in select cases.
The last fiscal witnessed some traction in urban demand.
With a favourable monsoon rural demand will gradually pick up.
"A sustained decline in inflation and monetary easing would help consumption demand to revive further in FY17," it added.
The report expects inflation based on the Wholesale Price Index (WPI), which has been in the negative zone for 17 months, to turn positive in early 2016-17 and be beneficial for both government and corporates.
"Continuous WPI deflation since November 2014 has not only reduced nominal GDP growth but also affected the top line growth of corporates," the report said.
According to it, both WPI as well as retail, or Consumer Price Index based, inflation will likely remain moderate and within the Reserve Bank of India's (RBI) comfort zone.
Ind-Ra expects at least one more (25 basis points) policy rate cut by RBI in the current fiscal and a faster monetary transmission due to the cut in small savings rates and as banks adopt the marginal cost based lending rate.
Although the 2016-17 fiscal arithmetic looks a bit sketchy, the report said, it believes the government will be able to achieve its fiscal deficit target 3.5% of GDP.
It expects the current account deficit in this fiscal to remain benign at 1.2% of GDP.
Accretion to forex reserves is expected to be about $28 billion and average rupee level to be at 67.79 in 2016-17, it said.
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 "Reason: Weak industrial growth.")
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