New Delhi: Financial major Citigroup on Tuesday slashed its outlook for India`s gross domestic product to 5.8 percent from its earlier projection of 6.8 percent on anxiety about the drought situation in the country.
"Factoring in negative agri growth, but leaving industry and services unchanged, we cut our FY10 GDP estimates to 5.8 percent from 6.8 percent," Citi India economist Rohini Malkani said in a note titled `Estimates Cropped…As Drought Fears Turn Real`.
Further, the financial services firm said the relief measures could widen the projected fiscal deficit of 6.8 percent for the current fiscal to 7 percent. Citi also raised its forecast for the year-end inflation to 6 percent from 4 percent earlier on higher food prices.
"The worst fears have come true. The rains have played truant resulting in 209 out of 593 districts already being declared drought affected," Citi said, adding it now expects tightening of policy rates by 125 basis points instead of 75 points seen earlier in the fiscal.
However, the bank said the economic impact of the drought will be muted due to various factors, including ongoing measures (NREGS, farm waiver, pay commission), stock of food grains and buoyant forex reserves if the need for import arises.
Besides, Citi kept its outlook for exchange rates unchanged at Rs 46 and Rs 44.5 for the financial years 2009-10 and 2010-11, respectively.