Mumbai: India’s economy should grow at a faster pace than previously expected in the fiscal year to March 2008 on buoyant manufacturing and services, but that pace will be slower than the strong 2006-07 expansion, a Reuters poll shows.
The median forecast in the latest quarterly poll suggested 2007-08 growth would be 8.5%, up from 8% in a similar poll in March. It also matches the central bank’s forecast.
Robust industrial growth and strong economic momentum, reflected in an unexpectedly strong 9.4% rise in GDP in 2006-07 reported late in May, prompted analysts to raise their forecasts.
Shubhada Rao, chief economist of Yes Bank Ltd, said industrial output remained strong in April. “There is little evidence at this point in time to show that the growth momentum is disrupted.”
The latest forecast still points to lower growth than the pace of expansion in 2006-07, a reflection of five interest rate increases in a year.
“To have a softer landing in the future, they would like to moderate growth now than have a hard landing later,” Rao said.
Growth has averaged 8.6% over the last four years. Industrial output in Asia’s third biggest economy grew 11.5% in 2006-07, helped by robust exports and the fastest growth for manufacturing in 10 years.
“If there is a moderation in global growth, as expected, India’s exports are likely to suffer,” Indranil Pan, chief economist with Kotak Mahindra Bank Ltd, said.
The strong growth has put pressure on prices—annual inflation, measured by the wholesale price index, hit a two-year high of 6.69% in January. The central bank’s interest rate rises and government cuts in various duties have seen inflation ease back under 5%, which is the central bank’s target for 2007-08.
The central bank held rates steady at its last policy review in April, but analysts do not rule out another increase.
“The rate hikes by RBI will have an impact on domestic growth and if growth doesn’t slow, we could see further monetary tightening,” Pan said.
Analysts forecast inflation at 4.9% in 2007-08, below the 5% forecast in March, and for 2008-09.
The central bank has a medium-term goal of lowering inflation to between 4% and 4.5%.