Economy to grow at 7.7 percent, inflation can touch 13 percent (Second Lead)

August 13th, 2008 - 5:22 pm ICT by IANS  

A file-photo of Manmohan Singh

New Delhi, Aug 13 (IANS) The Indian economy will grow at 7.7 percent in the current fiscal against 9 percent in 2007-08, and inflation could touch the 13 percent-mark, said the prime minister’s Economic Advisory Council (EAC) here Wednesday. The EAC, which released its ‘Economic Outlook for 2008-09′ report Wednesday, also advocated tight “monetary policy and adjustment in oil prices” to maintain growth momentum.

C. Rangarajan, who resigned Friday as EAC chairperson, said a 7.7 percent growth rate in gross domestic product (GDP) is “a pessimist’s estimation” and “an acceptable growth rate”.

“Optimists are projecting even 9 percent growth rate,” he said in the presence of his successor, economist Suresh Tendulkar.

Seconding him, Tendulkar said a “7.7 percent growth is the highest in any developing country”.

Rangarajan, now nominated to the Rajya Sabha, the upper house of Indian parliament, said the question of “easing monetary policy will arise only when inflationary trends start moderating.”

A former Reserve Bank of India (RBI) Governor, Rangarajan did not rule out the possibility of inflation touching the 13 percent-mark, currently pegged at 12.01 percent for the week ended July 26.

“Inflation may touch the 13 percent-mark,” he told reporters.

EAC has projected inflationary trends moderating to 8 to 9 percent by March 2009.

“The trends of moderation in inflation should begin in December,” Rangarajan said, adding: “Monetary tightening is needed to contain inflation.”

EAC attributed the high annual rate of inflation to rising global commodity prices, and called for “coordinated policy action to bring inflation down to 8-9 percent by March 2009″.

It has predicted a dip in the manufacturing sector to 7.2 percent from 8.8 percent last fiscal. In June this year, this sector clocked 5.9 percent growth against 9.7 percent in the previous corresponding period.

EAC said industry was likely to grow at 7.5 percent this fiscal, compared to 8.5 percent last fiscal, while agriculture would grow minimally at 2 percent, worse than the poor 4.5 percent growth recorded last fiscal.

“External environment is not conducive for the economy. Commodity prices are rising. There are certain supply side constraints. Infrastructure is not growing so fast,” he said.

He admitted that slow growth in agriculture and allied sector was a matter of concern.

“A 2 percent growth in agriculture is a serious matter,” Rangarajan said, and hoped for better farm output this season in view of normal rains.

The report, which was presented to Prime Minister Manmohan Singh July 30, has projected a sharp decline in foreign investment to $23.8 billion from $44.8 billion last fiscal.

The EAC report also predicted the services sector would grow 9.6 percent compared to 10.8 percent last fiscal.

The council attributed the slow growth in the current fiscal to a sharp rise in commodity inflation globally, tightening in the credit-equity market following the sub-prime crisis in the US, and general economic slowdown across the world.

Projections of Economic Outlook-2008-09

* Economy to grow at 7.7 percent

* Agriculture, industry and services to log 2, 7.5, 9.6 percent growth

* Investment rate at 37.5 percent and savings 34.5 percent of GDP

* Current account fiscal deficit at 3.2 percent

* Merchandise trade deficit $134.1 billion

* Merchandise export to grow at 31.4 percent against 23 percent in 2007-08

* Capital inflows of $70.9 billion against $108.03 billion last year

* Foreign investment $23.8 billion against $44.8 billion last fiscal

* Capital account balance 5.5 percent against 9.2 percent in last fiscal

* Accretion to reserves 2.3 percent against 7.9 percent in 2007-08

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