New Delhi: India’s economy is expected to grow 7.5-8% in the fiscal year ending March 2009, slower than the central bank’s estimate, while inflation would cool by March-end, a top government adviser said.
Most forecasts agree expansion in Asia’s third largest economy will slow as authorities struggle to keep a lid on rising prices by raising interest rates, tightening liquidity and cutting import duties.
Looking forward: C. Rangarajan, chairman of Prime Minister’s economic advisory council.
The Reserve Bank of India (RBI) in its monetary policy review last month cut the growth forecast to 8% from 8-8.5% previously, but its prediction is still above many private banks’ outlook for the Indian economy.
“We are looking at a growth rate between 7.5-8% this fiscal,” C. Rangarajan, chairman of Prime Minister Manmohan Singh’s Economic Advisory Council, said on Wednesday.
He added growth could rebound to more than 9% in 2009-2010.
RBI has raised its benchmark lending rate by 50 basis points to 9%, its highest in seven years and the third increase in two months, as it battles annual inflation close to 12%.
It is also increasing the proportion of funds that banks must keep on deposit with it by 25 basis points to 9% to absorb surplus cash in the banking system as it seeks to quell demand and quash knock-on price hikes from higher fuel prices.
Rangarajan, a former RBI governor and a respected economist, expected the inflation rate to moderate from the current 13-year high.
“I think it (inflation) could moderate to 8-9% by March-end,” he said, adding that softening global crude prices would help ease domestic prices.
But, Rangarajan cautioned that the present tight monetary policy stance of the central bank would continue unless there was a significant change in the price situation.
He said the government was expected to meet its fiscal deficit target of 2.5% of gross domestic product (GDP) in 2008-09 although the offbudget deficit might be higher than anticipated.
“Fiscal deficit as defined in the budget may not increase but off-budget deficit may,” he said without elaborating.
Hefty fuel subsidies, loan waivers for millions of poor farmers and proposed salary increases for government employees are constraining the country’s finances.
International ratings agencies have expressed concerns over India’s deteriorating public finances.