PM’s council lowers India’s growth forecast


New Delhi : The Prime Minister’s Economic Advisory Council Friday lowered India’s growth forecast for the current fiscal to 7.1 percent due to the impact of global meltdown and warned that the fiscal deficit was well above the comfort zone.

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The council, headed by economist Suresh Tendulkar, also told a press conference here that it expected the country’s gross domestic product (GDP) to expand by 7-7.5 percent during the next fiscal.

The council had earlier projected India’s growth at 7.7 percent this fiscal.

“The Indian economy is likely to remain relatively weak in the first quarter of the fiscal 2009-10 and slowly pick up thereafter,” Tendulkar told reporters here, adding that a pick-up was expected from the second quarter.

“The forecast factors in the impact of monetary easing, the fiscal stimulus and other administrative measures, including reprioritisation of public expenditure and accelerated implementation of infrastructure projects in the pipeline.”

He said the other favourable factors include an agrarian economy that is not in crisis, comfortable external payments situation, healthy bank balance sheets and strong domestic consumption and savings for financing investment.

The council also said the slowdown was caused by painful adjustment to abrupt changes in the international economy, rising inflationary pressures emanating from spiralling commodity prices and deeper-than-anticipated recession in the advanced industrial countries in the second half.

The council also said the combined fiscal deficit of the central government and the states was expected in the region of 10 percent of GDP in 2008-09 and well above the comfort zone.

But it said the high fiscal deficit was “a compelling need in the exceptional circumstances” facing the country this year.

Prime Minister Manmohan Singh had himself lowered his growth forecast for fiscal 2008-09 to 6.5-7 percent, saying the period of hardship was not yet over for the Indian economy and that it would continue next year.

The council, which advises the prime minister on key economic policy matters, said it expected the annual rate of inflation to fall further to 4.1 percent by the end of February. The inflation rate presently rules at 5.6 percent.

It expected the investment rate to be 2.5 percentage points lower at 35 percent due to financing constraints facing Indian enterprises and downturn in investor confidence in the second half of this fiscal.

It also projected the current account deficit for 2008-09 at 1.9 percent of GDP, but added that the country’s external payments situation was expected to be reasonably comfortable.