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GDP growth forecast at 8.5% for 2007-08

Apr '07
The GDP growth projection for 2007-08 has been pegged at 8.5%, said a CII Press Release issued here.

The elements in the economy, which have started surfacing towards the latter part of the fiscal 2006-07 are likely to play a moderating role on the growth prospects of the economy, said the Press Release.

CII believes that factors such as global moderation of growth, inflation, falling demand as a consequence to spiraling interest rates, appreciating rupee and significant supply shortages in the global and Indian economy may restrict the GDP growth in the current year to 8.5%.

Agriculture is expected to improve its growth performance from 2.7% to 3%, mainly owing to low base of last year and deliberate attempts to increase production of primary articles in response to high prices. However, this sector would continue to be the area to watch out for as this has the potential to become a binding constraint to long term growth prospects for the Indian economy, said CII.

The strongest factor contributing to growth moderation is going to be the result of repeated monetary interventions being made by the RBI to reign in inflation. These across the board rate hikes yield results with a lag and therefore, CII feels that the effects would be felt well into the new fiscal.

The current inflation is the result of mainly supply side shortages and therefore, a modestly tight monetary environment is what should be in place, feels CII. However,there are already signals of demand slowdowns in sectors like automotive, retail banking, etc, as a result of the rate squeeze and therefore, the growth forecasts have accounted for this trend.

With significant demand compression being resorted to, the growth of Industry and Services are likely to suffer slowdowns to 9.3% and 9.9% in the current year compared with the corresponding values of 10% and 11.2% last year.

Part of the growth moderation would also be owing to the strengthening rupee which is likely to slowdown exports, which had been a driver for the last few years, said the CII release.

Click here to view table:

Confederation of Indian Industry

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