growing indian economy

Indian economy seen growing 6.5%


PMO's outlook for fiscal year slightly more optimistic than central bank's July forecast

(MUMBAI) India's economy will grow 6.5 per cent this fiscal year, with strong industrial output making up for declines in agriculture because of poor rains, the Prime Minister's office said yesterday.

'On the whole we must say that the Indian economy has weathered the international economic crisis very well,' said C Rangarajan, chairman of the Prime Minister's Economic Advisory Council.
The council in its annual report said that capital inflows have revived, and projects them to reach US$57.3 billion this fiscal year from US$9.1 billion last year.

It forecasts industrial output to grow 8.2 per cent, up from 3.9 per cent last year.

The report's outlook for India's growth is slightly more optimistic than the central bank's July prediction of 6 per cent growth, with an upward bias, for the fiscal year ending March 2010.

Last fiscal year, India's growth tumbled to 6.7 per cent, after averaging 8.8 per cent over the prior five years.
Food inflation and a growing government budget deficit, however, remain serious concerns for Asia's third-largest economy.

'The one disturbing element in the Indian economy is the behaviour of inflation,' Mr Rangarajan said.

If inflation becomes very bad by year's end, 'the stance of monetary policy will have to change from its highly accommodating position', he said.

He said that India's 'accommodative policy' is likely to continue till March, but the highly accommodative position needs to be changed based on the country's growth prospects and inflationary pressures.

'The stance of monetary policy will have to change from its highly accommodative position. But that has to wait. It will depend on the growth prospects of the economy and also inflationary pressures.'

The panel sees inflation at around 6 per cent by the end of the current fiscal year to March 2010. The widely watched wholesale price index rose by 0.92 per cent in the 12 months to Oct 3.

The total fiscal deficit will likely hit 10.1 per cent of gross domestic product this fiscal year up from 8.6 per cent last year and far higher than government targets.

The cost of primary food articles has shot up by a third, the report said, and the benchmark inflation rate is expected to reach 6 per cent by March, higher than the central bank's July prediction of 5 per cent.

On oil, another member of the panel, Govinda Rao, said that India would not need to raise fuel prices, if global oil prices remain in the range of US$70-75 a barrel.

'We expect international crude oil prices around US$70 to US$75 per barrel. If prices go beyond that consistently, then the numbers will have to change,' he added.

The 22.7 per cent shortfall in summer monsoon rains will likely drive a 2 per cent contraction in agricultural output, the report said.

Projected food grain production is 223 million tonnes, down from 234 million tonnes last fiscal year.

The report said that economic growth is unlikely to drop below 6.25 per cent but could reach 6.75 per cent. -- AP, Reuters