Indian economy seen growing 8.5 percent next fiscal


New Delhi : The Indian economy will witness a further dip in growth to 8.5 percent in 2008-09 along with turbulence in the inflow of capital and dip in exports given the external situation, a high-power panel warned Thursday.

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“We had earlier predicted a nine percent growth for 2007-08. It is now likely to be 8.9 percent,” C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said while reviewing the performance of the Indian economy.

“It is also our view that the growth of the economy may go down further to 8.5 percent in the next fiscal, given the external situation and credit problems, and due to mild or even deeper recession in some developed nations,” he added.

The Indian economy had expanded by 9.6 percent and 10.2 percent in the first and the second quarters of 2006-07, compared with 9.3 percent and 8.9 percent in the comparable quarters of the current fiscal.

“This may be seen to suggest that the process of economic acceleration that has characterised the economy over the past five years has lost some of its pace, after having peaked in the first part of 2006,” the council’s report said.

Importantly, Rangarajan also said that India’s external trade and capital inflow can also get affected owing to likely recession in developed countries, notably the US and Japan.

He also warned that availability of electricity in the country had slackened and had emerged as a major constraint to the country’s growth. “The targets need to be achieved at the earliest,” he said.

Rangarajan also spoke about India’s public finances and said the revenue deficit could be marginalized if adequate measures were adopted.

The remarks come ahead of Finance Minister P. Chidambaram’s national budget in February.

Rangarajan, a former governor of the Reserve Bank of India (RBI), nevertheless, said that one positive factor for the country’s economy was the continuous rise in savings and investment rates.

He also pointed toward some turnaround in the performance of state-run companies with savings by these enterprises moving up from (-)2 percent in 2001-2002 to 2 percent this fiscal.

Looking ahead, Rangarajan said there was this possibility that the slowdown in the US could turn into recession, especially if there emerged some triggers such as adverse geopolitical developments.

“The effects are likely to be felt through both trade and capital flows, with Indian companies experiencing greater challenges in gaining market share, as also to finance ambitious investment projects or overseas acquisitions.”

He also said there were some other “downside risks” that could stem from not taking much-needed decisions like hiking fuels prices. The impact of the next pay panel recommendations and fertiliser doles could also affect growth.

“Taking all factors into consideration, the council expects the economy to grow at about 8.5 percent in 2008-09.”