Economy to grow by 8.6% in FY11, inflation a concern

Economy to grow by 8.6% in FY11, inflation a concern

New Delhi: A high farm output on top of abundant rainfall has helped the Indian economy grow by an estimated 8.6% in 2010-11, against 8% a year ago, but high inflation remains a dampener.

According to advance estimates released by the government, the Indian economy would grow by 8.6% this financial year, despite fragile global recovery since the financial meltdown of 2008.

“All along I was maintaining, it should be around 8.5% plus. 8.6% is accepted," finance minister Pranab Mukherjee said adding, “Now the other issue is inflation, trade balance... these are to be addressed".

Agriculture and allied activities are expected to grow at 5.4% in 2010-11 compared to just 0.4% in the previous financial year.

The 8.6% GDP growth prospects, however could not cheer markets. The BSE benchmark Sensex closed almost flat at 18037.19 on concerns of inflation and rising interest rates.

The CSO’s GDP growth projection is a shade higher than the forecasts of 8.5% made by the Reserve Bank of India and Mukherjee earlier.

While services such as trade, hotel, transport and communications improved to 11% from 9.7%, the manufacturing remains static at 8.8% year on year.

Mining and quarrying is likely to grow by 6.2%, compared to 6.9% a year ago, while electricity, gas and water production will grow up by 5.1%, as against 6.4% in the previous fiscal.

With over dependence on monsoon, the country’s agricultural growth continues to fluctuate year-on-year depending on the weather gods.

Mukherjee said the economic growth estimated was satisfactory in the wake of the rising inflation and trade imbalances.

The overall inflation has remained above the comfort zone of 5-6% for over a year now.

In December, inflation shot up to 8.43%, from 7.48% in the previous month. Food inflation for the week ended January 22 stood at 17.05%.

However, chief economic adviser Kaushik Basu while admitting inflation was a concern, said it would not affect the growth story.

“And the target of 9% economic expansion for the next financial year is well with in the reach," he added.

“The prospects for the world as a whole are looking better but still there are uncertain clouds. In that scenario growth of 8.6% is absolutely remarkable. So the 9% which we are aiming for next year is now looking well within target," Basu said.

Earlier, the GDP estimate for 2009-10 was revised upward to 8% from 7.4%.