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Economy to grow at 8.2% this fiscal, says report

Economy to grow at 8.2% this fiscal, says report
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First Published: Mon, Aug 01 2011. 12 40 PM IST
Updated: Mon, Aug 01 2011. 12 40 PM IST
New Delhi: India faces a “significant challenge” in achieving its budgeted fiscal targets for the current year, a top economic advisory panel said on Monday, as it forecast the fiscal deficit slightly above projected levels.
The prime minister’s economic advisory council said the fiscal deficit could touch 4.7% in the year to March 2012, above the government’s target of 4.6%, and advised stronger measures to increase revenue intake and cut spending.
The council cut its 2011-12 growth forecast to 8.2% from 9% and predicted headline inflation would not begin to ease till November.
Bonds, swaps and shares did not react to the report.
India’s economy has shown signs of a slowdown on high inflation and as an aggressive monetary policy takes its toll. Analysts have warned that lack of structural reforms are holding back growth and could weigh down future expansion.
“We agree its a significant challenge for meeting the fiscal deficit target,” said Shubhada Rao, chief economist at Yes Bank in Mumbai.
“We see challenges not just from expenditure but also in terms of revenue in terms of disinvestment and being able to maintain the current tax revenue buoyancy with slowing manufacturing momentum.”
On Monday, data showed factory growth fell for the third straight month, with a key index for the manufacturing sector at the lowest level since November 2009.
The Reserve Bank of India (RBI) has lifted its policy rate eleven times since last March, and has said it is willing to sacrifice some short-term growth to contain inflation, which stood at 9.44% in June.
Inflation would remain around 9% till October, and ease to 6.5% by March, the council said.
The central bank “will have to continue a tight monetary policy till inflation shows definite signs of decline,” the council said.
Foreign direct investment into India would rise to $35 billion in 2011-12 from $23.4 billion in the previous year, the council estimated. Total capital inflows would rise to $72 billion from $61.9 billion, it said.
The current account deficit would be at 2.7% of the 2011-12 GDP, it said.
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First Published: Mon, Aug 01 2011. 12 40 PM IST
More Topics: Economy | Inflation | Growth | Development | PMEAC |