Mumbai, Oct. 30: This has got to be the scariest forecast for India: a study put out by Citigroup says the country’s GDP (gross domestic product) growth could plummet to 5.8 per cent in the year ended March 2010 in a worst-case scenario.

If liquidity problems intensify and investments slow, GDP growth could tumble below 6 per cent — which could be the lowest growth rate since 2002-03 when it dipped to 3.8 per cent.

The Citigroup projection comes on top of a spooky Morgan Stanley forecast of a growth rate of 6.4 per cent this fiscal.

Last week, the Reserve Bank of India (RBI) scaled back its GDP growth forecast for this fiscal to anywhere between 7.5 and 8 per cent from a level of 8 per cent earlier.

Blame it all on the tepid growth in gross capital formation which, Citigroup says, could plummet to 2 per cent from 13.7 per cent in the year ended March 2008.

Gross capital formation measures the value of additions to fixed assets — basically land, buildings and machinery though it could also include intangibles such as software and intellectual property — minus the assets that have been sold or scrapped.

Rohini Malkani, economist at Citi India, has three scenarios for India: in the worst-case, GDP growth would plunge to 5.8 per cent; in a best-case scenario, it would hover around 7.4 per cent. In the base case scenario, GDP growth would be at 6.6 per cent.

Malkani says sub-7 per cent GDP growth in 2009-10 will arise from the intensification of financial stress and global recessionary conditions.

She argues that the structural India story is still in place. From being an agri-dependent economy, growth currently is a result of the investment cycle upturn, urban/services-led consumption, outsourcing and the trickle-down effect.

At the same time, both savings and investment have risen by more than 10 per cent in the last five years and this has been sustained through productivity improvements and rising foreign direct investment inflows.

However, Malkani warns that the intensification of financial stress and risk aversion has resulted in tight liquidity conditions and raised borrowing costs.

“While consumption is expected to hold up given the fiscal stimulus, we believe this will further impact investments where growth has decelerated to single-digit levels in first quarter of 2008-09 from the double-digit levels seen earlier. On exports, recessionary conditions in the US and Europe will result in a moderation in growth from more than 24 per cent seen in the recent past to 19 per cent in 2009-10,” Malkani said.