With the country expected to witness a poor monsoon rainfall for the second consecutive year, many foreign brokerages have cut their forecasts for India's gross domestic product (GDP) and the latest one to trim its growth forecast of the country is Morgan Stanley.
Morgan Stanley has cut its forecast for India's GDP growth to 7.5% in the current financial year (2015-16) from an earlier estimate of 7.9%. The firm has cited below normal monsoon rainfall and subdued demand for country's exports as major reasons for the downward revision.
Earlier this month, Moody's Investors Service had trimmed its growth estimate for India to 7% for 2015-16 from the previous forecast of 7.5% citing lower than expected monsoon rainfall witnessed across the country.
The global financial services firm said the recent weakness in monsoon rainfall has led to worries over agricultural output this year that could result in a fall in rural consumption.
"In this context, we are revising our growth estimates slightly for F2016 to 7.5 per cent (from 7.9 per cent earlier) and for F2017 to 8.1 per cent (from 8.4 per cent earlier)," Chetan Ahya, chief economist for Morgan Stanley in Asia said in a research note to PTI.
India's GDP grew 7% in the first quarter of the current fiscal compared to a growth of 7.5% in the previous quarter. The decline in growth was mainly led by a drop in manufacturing activity.
The firm said the country's GDP growth is likely to accelerate "from 7.3 per cent in 2014-15 to 7.5 per cent in F2016 and 8.1 per cent in F2017, making India one of the few emerging market economies to achieve higher productive growth trajectory".
"We expect this improvement in growth trajectory to be driven by pickup in capex, urban consumption and stabilization of exports," the report added.
Morgan Stanley expects inflation to remain below 5% year-on-year in the coming two years. It sees the central bank cutting key rates further by 50-75 bps by March 2016.
The Consumer Price Inflation (CPI) declined to a nine-month low of 3.8 percent in July due to lower food prices, widening the scope for the Reserve Bank of India (RBI) to cut rates.