[NEW DELHI] India slashed its full-year economic growth forecast on Friday, weighed down by weak global demand and a drought that has created risks for farm output, but reiterated its commitment to narrow the fiscal deficit to an eight-year low.
Asia's third-largest economy is now expected to grow 7-7.5 per cent in the fiscal year ending in March 2016, the finance ministry said in its mid-year economic review, down from an estimate of 8.1-8.5 per cent announced in February.
The downgrade came after the economy grew 7.2 per cent in the first half of the 2015/16 fiscal year.
Still, if it meets the government's estimate, the South Asian nation will remain the world's fastest growing major economy as China's GDP is struggling to maintain the near-7 per cent pace promised by its leaders.
Slowing demand for Indian merchandise in overseas markets has hit growth as exports, that account for about a fifth of India's US$2 trillion economy, have tumbled for the past 12 months.
"Declining exports seem to be predominantly determined by a decline in the world demand," the report said. "Regardless of the causes, the effect has been a drag on growth." Growth in 2016/17 is unlikely to be significantly higher, the report said.
The finance ministry said it will stick to its budgeted fiscal deficit target of 3.9 per cent of GDP for the current fiscal year.
But the fiscal outlook for 2016/17 looks challenging and the government will need to reassess its commitment to cut the deficit further by 0.4 per cent of its GDP in the financial year that begins in April, the report cautioned.