India cuts growth forecast to less than five percent before election

By Manoj Kumar

NEW DELHI (Reuters) - India on Friday cut its estimate of annual growth for the fiscal year to 4.9 percent from 5 percent because of a contraction in the manufacturing and mining sectors.

The revision down will do little to help the Congress party-led ruling alliance, which faces an uphill battle in a general election due by May amid allegations of economic mismanagement, corruption scams and high inflation.

Last week, the Statistics Ministry revised down economic growth for the previous fiscal year to 4.5 percent - the slowest pace during the decade Manmohan Singh has been prime minister - from an earlier estimate of 5 percent.

Farm output is expected to grow 4.6 percent in the fiscal year to March 31, against 1.4 percent growth a year ago, while the manufacturing sector is seen contracting by 0.2 percent compared with 1.1 percent growth in 2012/13, the Statistics Ministry said in a statement.

Last year, Finance Minister P. Chidambaram had projected gross domestic product (GDP) growth of 6.1-6.7 percent in 2013/14 in his annual budget, but lately lowered the estimates to about 5 percent.

Chidambaram is widely expected to announce measures, including a cut in factory gate duties on some products, to push up manufacturing output when he presents an interim budget for the coming fiscal year in parliament on February 17.

The full-year budget will, however, be presented by the next finance minister after the elections.

Asia's third-largest economy grew at 4.6 percent annually in the first half of the current fiscal year, down from 5.3 percent in the corresponding period a year ago.

The services sector, which contributes about 60 percent to gross domestic product, is likely to grow at 6.9 percent in the current fiscal year, compared with 7 percent growth a year ago, the data showed.

The construction sector, contributing nearly 8 percent to GDP, is estimated to grow at 1.7 percent from 1.1 percent a year ago.

"The data shows that there is an overall slowdown in the economy with construction being very weak together with manufacturing," said Saugata Bhattacharya, chief economist at Axis Bank.

"Going ahead, we expect GDP growth to definitely pick up to around 5.2-5.3 percent depending on the policies of the next government," he said.

Increases in interest rates by the Reserve Bank of India to rein in near-double digit retail inflation - three times since Raghuram Rajan took charge in September - have also dampened chances of early economic recovery.

"Notwithstanding a favourable monsoon in 2013 and healthy agricultural performance, the pickup in rural demand has been uneven and weaker than expected," said Aditi Nayar, an economist at ICRA, the Indian arm of rating agency Moody's.

The economy grew at more than 9 percent annually for three straight years during the 2005/06 to 2007/08 period, before being hit by the global financial crisis and high interest rates amid a slower global recovery.

SLOWING DEMAND

This year, the government has cleared hundreds of much-delayed projects such as power plants, mines and ports, but the impact is expected to be visible only in next year's growth numbers, due to a time lag in actual investments.

Last week, the Reserve Bank of India in its quarterly review said the weakening of private consumption and investment demand had dampened prospects of a second-half pick-up in GDP growth.

Consumption, which contributes about 70 percent to the near $1.8-trillion economy, is expected to grow 4.4 percent in fiscal 2013/14, down from 5.2 percent the previous year, the data showed.

Indian makers of durable goods such as washing machines, refrigerators and electronic items face a bad year, as output of these goods contracted 12.6 percent during the period from April to November.

Annual car sales declined by about 5 percent in the first three quarters, hit by high inflation, fuel prices and interest rates.

(Additional reporting by Rajesh Kumar Singh in NEW DELHI, Suvashree Dey Choudhury in MUMBAI; Editing by Angus MacSwan and Robert Birsel)