Prime minister’s economic council projects 6.5 percent growth


New Delhi : The Prime Minister’s Economic Advisory Council has projected a lower growth of 6.5 percent for the Indian economy during the current fiscal year, due mainly to a two-percent decline anticipated in farm output over the previous year.

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While industrial output, the council said Wednesday, will rise 8.2 percent, as against 3.9 percent growth in the previous fiscal, services will also register a lower growth of 8.2 percent against 9.7 percent in 2008-09.

“It’s unlikely that growth will be lower than 6.25 percent but may reach 6.75 percent,” council chairman C. Rangarajan said, after presenting the report to Prime Minister Manmohan Singh here.

The country’s gross domestic product (GDP) had expanded 6.7 percent last fiscal.

“Indian economy has done well in recent years,” Rangarajan said, adding: “The Indian economy has also weathered the economic crisis well and India remains the second-fastest growing economy in the world.”

The council also said that a tight monetary policy had to continue since inflation was once again expected to pick up.

“The stance of the monetary policy will have to change from the highly accommodative position. But that has to wait. It will depend on growth prospects of the economy and also inflationary pressures,” Rangarajan told reporters.

The Reserve Bank of India is likely to keep interest rates untouched, when it meets for its quarterly policy review in Mumbai Oct 27. But analysts believe the tightening of interest rates could start early 2010.

Rangarajan also said that the government may not have to borrow more, at the cost of crowding out credit to the corporate sector. “I don’t see any more need for borrowing. The funds will also be available through public sector divestment,” he said.

The council chairman also predicted a consolidated fiscal deficit of 10.09 percent of GDP for the central and state governments, against 8.6 percent last year, and called for the return to fiscal consolidation.

The other highlights of the report are:

– The Indian economy weathered the financial turbulence well

– There were well-calibrated adjustments in the monetary and fiscal policies

– Recession, demand contraction in rich nations have impacted export

– Further negative shock in global financial system can threaten India’s growth

– Investment rate projected at 36.5 percent in 2009-10

– Savings rate projected at 34.5 percent in 2009-10

– Rabi (winter) crop prospects are good

– Projected food grain production in 2009-10 223 million tonnes

– Current account deficit will be 2 percent of GDP

– Exports projected at $188.9 billion in 2009-10

– Imports projected at $306 billion in 2009-10

– Merchandise trade deficit projected at $117 billion

– Capital inflows projected at $57.3 billion

– Surge in food inflation and 13 percent annualised increase in wholesale price index

– Huge 33 percent rise in index for primary food index

– Global inflationary pressures will remain high especially in oil and commodities

– Inflation in March 2010 expected around 6 percent

– Bank credit sluggish till September 2009

– Corporate sector raised large amounts from the domestic market

– Projected consolidated fiscal deficit at 10.09 percent in 2009-10