India sees FY growth near 9%, exports may slow

India sees FY growth near 9%, exports may slow

New Delhi: The economy is expected to grow by close to 9% this fiscal year, but export growth could moderate, the finance minister said on Friday.

Palaniappan Chidambaram said he was confident that authorities would master the management of large capital inflows and maintain price stability even as surging global prices of oil, commodities and food pose a risk.

Analysts say India may continue to use the cash reserve ratio and market intervention bonds to negate the impact of inflows, which have forced up the rupee, but is unlikely to impose a blanket curb on inflows or overseas borrowings.

“Economic growth has averaged at 8.6% in the last four years. I am reasonably confident 2007/08 will turn out a growth close to that average, it will be close to 9%," the minister told a business conference.

But India must speed up infrastructure building, he said, and would need to invest $475 billion over five years to sustain high growth. Up to $130 billion must come from foreign direct investment.

Foreigners are pouring money into Indian stocks, pumping in about $17 billion so far this year, boosting the rupee and making it difficult for the central bank to manage surplus cash.

On Thursday, central bank deputy governor Rakesh Mohan said the bank would use all instruments — market intervention bonds, liquidity adjustment facility and cash reserve ratio — to maintain price stability and manage liquidity.

“I am confident, we will gain mastery over that," Chidambaram said.

D.K. Joshi, principal economist with domestic rating agency Crisil, said authorities would tread carefully.

“If inflows continue to be high, they (central bank) will either use the cash reserve ratio and market intervention bonds. I don’t think there will be a blanket curb on inflows or external commercial borrowing," he said.

Export growth has fallen in recent months as the rupee touched near-decade highs, and Chidambaram said expansion could drop further due to the subprime crisis in the United States and a possible slowdown in the world’s largest economy.

In April, India set a 28% export growth target at $160 billion for the year to March 2008. But growth stood at 18.5% during April-September and India is now thinking of revising its annual target.

“There could be some moderation in the export demand in India," the minister said. The US accounts for about 40% of India’s exports.

Chidambaram said inflation was also a concern globally as oil prices threaten to rise further from near $100 a barrel now.

“Oil prices have risen to new heights and there is a warning it will rise further. It is important to factor in price increase and adjust policies so that inflation is not fanned in India."

India’s wholesale price index rose 3.11% in the 12 months to 3 November. The government releases the latest inflation data on Friday at 0630 GMT.