India's GDP will grow at 7-7.5 pc in 2015-16, lower than 8.1-8.5% estimated previously, says the Mid-Year Economic Review tabled in Parliament on Friday.
The Indian economy had grown at 7.4% during the second quarter ended September 2015 and 7% in the first quarter this fiscal.
The mid-year economic review says inflation will be within 6% this financial year, a target set by the Reserve Bank of India.
The mid-year economic review reaffirms the government's committment to reign in fiscal deficit at 3.9% of the GDP this financial year.
"Slower than anticipated nominal GDP growth will itself raise the deficit target by 0.2 per cent of GDP," the review said, adding, "the anticipated shortfall in disinvestment receipts, owing to adverse market conditions for a portfolio that largely comprises commodity stocks, will add to the challenge."
Disinvestment has been a disappointment this financial year, with the government managing to raise Rs 12,700 crore till now, far below than the full-year target of Rs 69,500 crore.
The mid-year economic review said that indirect taxes have grown better than direct taxes. During April to October 2015, indirect taxes stood at Rs 3,82,860 crore, up 35.9% from Rs 2,81,798 crore in the corresponding period last year.
The highest growth was seen in excise collections, at 68.6%. Customs and service tax grew at 16.8% and 26.1%, respectively. The service tax rate was increased from 12% plus education cess to 14%, with effect from 1 June, 2015.
The CEA, Arvind Subramanian said that fiscal outlook will be "a little challenging next year."
"The benign fiscal situation and improving fiscal conditions have boosted growth this fiscal," the report said.
"However, GDP growth has been powered only by private consumption and public investment is a concern. [Going forward] the proposed wage hike for government workers may impact plan for next fiscal," it added.
Stock markets extended losses, reacting to the downward revision.
After opening with a loss of 91 points, the S&P BSE Sensex was trading at 25,650, a loss of about 154 points, or 0.60%.
HDFC Bank, ICICI Bank, Infosys, Wipro, ITC, TCS were all trading in the red. The NSE Nifty was down 45.80 points, or 0.58% at 7,798.55.
The pessimistic projections for the current fiscal by the Modi government are bound to snap the rally witnessed on the stock markets yesterday despite the US Fed interest rate hike.
