Citi projects FY'09 GDP growth to fall to 7.5%,Goldman to 7.8%

New Delhi, Aug 31 : Global financial services major Citigroup has projected that investment trends in India may weaken as the impact of monetary tightening sets in, with the entire year clocking a slower growth rate of 7.5 per cent.

The investment banking giant Goldman Sachs has, however, projected that the economy would register a growth rate of 7.8 per cent in the current fiscal year, a shade lower than GDP rate posted in the first quarter.

Rising interest rates pulled the economic growth rate down to 7.9 per cent in the first quarter of this fiscal, lowest in any quarter in three-and-a-half years.

Citigroup in its latest report Indian Eco Flash stated that it has revised FY09 estimates from 7.7 per cent to 7.5 per cent.

"Investments have faced a double whammy with rising input costs on the one hand and more stringent borrowing constraints on the other," Citigroup analyst Rohini Malkani said in the report.

Besides, Goldman Sachs in its latest report stated that, "in FY'09, slowing investment demand will likely be offset by a large fiscal stimulus through greater spending on a rural employment scheme, a debt waiver to farmers and wage hikes to civil servants."

Further, a near-normal monsoon is expected to support the food grain production this fiscal, it added. The Indian economy expanded by a slower 7.9 per cent in the first quarter of current fiscal as rising interest rates hit manufacturing and other key growth engines of the economy.

Interestingly, Goldman Sachs expects growth to slow further to 7.2 per cent in FY 2010, due to a weaker investment outlook caused by much higher interest rates, continued moderation in consumer demand and a partial reduction in fiscal stimulus post-election.

"We think that activity will trough in first half of FY10 before picking up gradually as interest rates start easing", it added.

Further, with RBI expressing concern on the continued rising prices of the essential commodities Goldman Sachs expects inflation to remain in double digits through 2008, before declining to 9 per cent by March 2009 and even slowing to 5.3 per cent in FY 2010.

The report expects that the central bank would raise rates one more time (0.25 per cent each in repo rate and the cash reserve ratio) at its monetary policy review in October.