New Delhi: The Indian government Monday lowered the economy's growth forecast for the current financial year to 5.7 percent, down sharply from an earlier projection of 7.6 percent announced in March, owing to unfavourable global and domestic conditions.
In the mid-year economic analysis tabled in Parliament, the finance ministry, however, said it was on track to meet the fiscal deficit target of 5.3 percent.
Growth has slumped in recent quarters due to the lingering uncertainties in the global economy and domestic policy inaction. The country's gross domestic product (GDP) has expanded by just 5.4 percent in the first half of 2012-13.
The finance ministry said in the report that growth was likely to improve in the second half the current financial year and it would remain between 5.7 and 5.9 percent.
"It should be possible for the economy to improve the overall growth rate of GDP to around 5.7 percent to 5.9 percent for the year 2012-13," the report said.
Addressing a press conference, Chief Economic Advisor Raghuram Rajan said the Indian economy had bottomed out and the growth was likely to improve in the second half of 2012-13.
He said a series of reform measures taken by the government would help propel economic growth above 6 percent in the second half of the current financial year. The economy grew by 5.5 percent in the first quarter and 5.3 percent in the second quarter of 2012-13.
"This is not the growth rate that we feel comfortable with," Rajan said.
In the report, the finance ministry said the slowdown were due to a combination of domestic and global economic conditions.
"The slowdown in growth in advanced economies and near recessionary conditions prevailing in Europe resulted not only in lower growth of international trade but also lower capital flows," it said.
Turning to domestic factors, rainfall in the monsoon season of 2012-13 has been below normal, particularly in the key months of June and July. This affected sowing and resulted in a lower growth rate of agriculture and allied sectors, the report said.
High cost of borrowings due to the tight monetary policy of the Reserve Bank of India has also negatively affected the economic growth.
"The cost of borrowing remains at elevated levels and this has had an impact on investment and growth in the economy, particularly that of the industry sector," it said.
"Bottlenecks in project implementation have made financing more difficult and investors more cautious," the ministry added.