India’s gross domestic product (GDP) will grow by 4.2% in the year to March, Nomura Financial Advisory and Securities (India) Pvt. Ltd said on Saturday, citing pressures the country is facing on balance of payments and on the likelihood of the government unable to check spending.

The Japan-based investment bank had earlier predicted a growth of 5%.

Nomura expects balance of payments pressures to continue “over the next three to six months,” raising inflation, short-term borrowing costs and further denting investor confidence.

A high current account deficit and a slowdown in dollar inflows is hurting India’s economy over the past few months, leading to more than 20% drop in the value of the rupee against the dollar.

The country’s current account deficit has ballooned to a record $88.2 billion, or 4.8% of GDP, in the year ended 31 March .

“With fiscal pressures building, the government will likely be unable to continue its current pace of spending without risking substantial fiscal slippage, implying spending will have to be sliced in the second half of fiscal 2014. Hence, the risk of a pro-cyclical fiscal and monetary policy tightening is rising and the downside risks to our growth outlook have materialized,” Nomura said in a note published on Saturday.

Nomura is the first among the foreign investment banks to cut India’s GDP forecast after government figures released on Friday showed that the country’s GDP grew at 4.4% in April-June 2013, the slowest in that period in four years and below estimates of 4.8%.

Nomura said the GDP growth would have been under 4% had it not been for higher government spending, which grew at 10.5%.

“Looking ahead, good monsoon and a gradual recovery in global demand are positives, but the question is whether they will be able to offset the drag from the ongoing BoP stress. We retain our negative view on India’s macroeconomic outlook for the next three to six months,” Nomura said.