India’s growth pegged lower but pace remains robust (Round-up)

August 13th, 2008 - 7:24 pm ICT by IANS  

A file-photo of Manmohan Singh

New Delhi, Aug 13 (IANS) India’s economic growth forecast for this fiscal was pegged at a lower range of 7.7 percent to 8 percent by various official estimates Wednesday, but all agreed that even at that level, the pace would remain robust. The first set of forecasts came from the high-powered Prime Minister’s Economic Advisory Council, headed by former Reserve Bank of India (RBI) governor C. Rangarajan, which estimated the growth at 7.7 percent.

“Optimists are projecting even 9 percent growth rate,” he told reporters here, after presenting the panel’s take on India’s economic outlook for 2008-09 to Prime Minister Manmohan Singh.

“The downside risk to our growth expectations in 2008-09 is primarily from a further deterioration in global conditions with attendant impact on India - be it in the sphere of oil prices or capital markets,” the panel’s report said.

Soon after, Finance Minister P. Chidambaram, who met the chief executives of commercial banks here, said the fundamentals of the Indian economy continued to be strong, with no signs of any slowdown.

“The growth will remain around 8 percent,” he said. “There is no slowdown in the economy. There is no slowdown in any other sector. There is no slowdown in infrastructure and new projects,” he added.

Planning Commission deputy chairman Montek Singh Ahluwalia Tuesday had said there was need to improve the industrial growth rate if the economy had to register around 8 percent growth rate.

“I do agree that the growth in the industrial sector is rather slow. We need to improve it to maintain the growth momentum of eight percent or above,” Ahluwalia had told IANS.

In a similar vein, the central bank had also pruned its growth projection to 8 percent from 8.5 percent because of global and domestic developments when it reviewed its monetary policy for the current fiscal late last month.

The Rangarajan panel also predicted a dip in the manufacturing sector growth 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.

The panel said the index for industrial production was expected to rise by 7.5 percent this fiscal compared to 8.5 percent last fiscal, while agriculture would grow at 2 percent, worse than the poor 4.5 percent growth recorded last fiscal.

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

Chidambaram, nevertheless, sought to assuage the feelings of India Inc, both on credit off take and delivery. “We are confident that credit delivery will still be brisk. Productive sectors will not be starved of credit.”

On the issue prices, Rangarajan did not rule out the possibility of inflation rate scaling a new high from the current level of 12.01 percent for the week ended July 26.

“Inflation may touch the 13 percent-mark,” he said, even as the panel projected inflationary trends to moderate to 8-9 percent by March 2009.

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

Some of the key projections of the panel for this fiscal include:

* 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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