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India FY10 GDP may grow at 7.2%: Govt

Published on Mon, Feb 08, 2010 at 11:25 | Source : Moneycontrol.com

Updated at Mon, Feb 08, 2010 at 16:30

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India's economy is expected to grow at 7.2% in fiscal year 2009-10, the government said on Monday, reinforcing the possibility it may start to unwind its fiscal stimulus in the forthcoming budget.

The official growth forecast is line with other estimates this month and comes amid speculation that India's central bank could raise interest rates even before its next policy review in April to dampen inflation.

The FY10 advance GDP estimate by the Central Statistical Organisation showed an uptick in growth estimates for manufacturing (8.9% compared to 3.2% last year), mining (8.7% vs 1.6%), industry growth (8.2% vs 3.9%) and construction growth (6.5% vs 5.9%). However, growth in financial services (9.9% vs 10.1%) and services (8.7% vs 9.8%) may come in lower.

India's central bank, the Reserve Bank of India, recently upped its GDP growth forecast for the FY10 to 7.5% from its earlier projection of 6%. The International Monetary Fund recently forecast India to grow at 6.75% in the year.

The country's economy grew by 7.9% in the third (October-December) quarter but growth is expected to slow down in the fourth quarter as the full impact of the drought last year is expected to weigh down on agriculture growth.

Indian policymakers, including Prime Minister Manmohan Singh, have said they expect the economy to grow around 7.5% in the fiscal year ending March, after it slowed to 6.7% in 2008/09 as the global economic crisis shaved off growth.

Finance Secretary Ashok Chawla said the 7.2% figure was on expected lines. He added that a better rabi crop may result in a 0% growth for the farm sector as opposed to negative growth that many experts were expecting.

Inflation, he added, continued to remain an area of concern. "The other day, the prime minister and the ministers had a day-long meeting with the chief ministers. So they have looked at all the short term and also the medium and long term measures for which they have set up a committee."

Deputy Chairman of Planning Commission Montek Singh Ahluwalia said, "We will find an appropriate pace at which the stimulus is withdrawn and that's what all countries around the world are doing, so we have to wait and see what happens."

Ahluwalia, however, said that if the country reverts to a 7% plus GDP growth, it was time to start phasing out the stimulus exit and concentrate on the bringing down the fiscal stimulus.

"We have known this for a long time the fiscal deficit next year has to be lower than whatever the fiscal deficit is this year and I am sure that we will know the numbers as and when the budget becomes final but I am not speculating how much lower and at what pace, those are the questions which we have to leave to the finance minister."

- With inputs from agencies