Citigroup said it was cutting its projection for India's economic growth for the current fiscal year to 5.8 per cent from 6.8 per cent earlier, taking into account the effects of a weak monsoon.
"Factoring in negative agricultural growth but leaving industry and services unchanged, we cut our FY10 GDP estimates to 5.8 per cent from 6.8 per cent, but retain the FY11 (2010-11) estimate at 7.8 per cent," it said in a note released in Mumbai.
The US financial services firm maintained its growth forecasts for industry at 5.5 per cent and services at 8.6 per cent. The bank also said that it now expected policy tightening of 125 basis points for 2009-10, compared with an earlier forecast of 75 basis points.
Citi said the government's relief measures to deal with the drought in many districts of the country could widen the fiscal deficit to 7 per cent from 6.8 per cent of the gross domestic product.
In the note titled 'Estimates cropped as drought fears turn real', Citi also raised the forecast for the year-end inflation to 6 per cent from 4 per cent earlier on higher food prices.
"Our worst fears have come true. The rains have played truant resulting in 209 out of 593 districts already being declared drought affected," Citi India economist Rohini Malkani said.