India slashed its full-year growth forecast on Friday, citing weak global demand and lower farm output, and called for speedier reforms as well as a review of fiscal and monetary policies to resuscitate economic activity. In a mid-year review, Prime Minister Narendra Modi's government said the economy would likely expand by 7-7.5 percent in the fiscal year ending in March 2016, sharply lower than an 8.1-8.5 percent growth estimated in February.
Still, the South Asian country will remain the fastest growing major economy as China's gross domestic product (GDP) is struggling to maintain the near-7 percent pace promised by its leaders. While India is finally emerging from China's shadow in the global growth stakes, it's still not firing on all cylinders. The government said Asia's third-largest economy is being hobbled by weak corporate spending, tepid global demand and two successive droughts that have hit farm output and a significant improvement was unlikely unless pending tax and financial sector reforms were carried out.
"The improvement in growth has been uneven, powered only by private consumption and public investment," it said. "To move India rapidly to its medium-term growth trajectory, supply side reforms and demand management will be essential." Indian markets extended losses after the government's review was presented to parliament, with the 50-share NSE index falling more than 1 percent. The benchmark 10-year bond yield rose 2 basis points to 7.72 percent.