The Confederation of Indian Industry (CII), an industry lobby, has forecast the economy to expand at a marginally slower 9.2% in 2007-08 as rising interest rates, inflation and an appreciating rupee damp both export and domestic demand.
Growth in 2006-07, as measured by the rise in the gross domestic product, was 9.4%, according to a government statistics collecting arm, the Central Statistical Organisation.
According to a CII statement released Saturday, agriculture is likely to improve its growth to 3% in 2007-08 compared with 2.7% last year as there are attempts to boost production to tackle rising prices. Still, CII said that there is a decline in the production of oilseeds as farmers switch to more lucrative crops such as wheat and gram. The lobby has called for increasing the minimum support price, the rate at which the government buys from the farmers, of oilseeds as otherwise it will lead to imports.
The services sector is expected to grow at 11.25% the next fiscal compared with 11% a year ago driven by demand for financial sector and information technology. The sector, which will likely pull down GDP growth, is manufacturing, where growth will be stunted due to rising interest rates. The RBI has increased its benchmark rate six times in the past 18 months to contain inflation. The rupee too has appreciated by 8% in the past six months. Consequently, industrial production, as measured by the government’s Index of Industrial Production, expanded in May by 11.1%, marginally slower than the 11.7% in April.
The statement said that all these projections were based on the assumption that the central bank would ease hiking the interest rate.