Real GDP growth to stabilise at 8.6%: CMIE

India's real GDP is expected to grow by 8.6% this fiscal as compared to a growth of 8.5% recorded in FY11, Centre for Monitoring Indian Economy (CMIE) said in its monthly review.

The industrial sector is expected to grow at a faster rate of 8.9% as compared to the 7.9% growth it registered in 2010-11.

Growth of the services sector is projected to scale up to 9.9% as against 9.4% earlier. However, the agricultural sector would see a fall in its growth rate from 6.6% in FY 11 to 3.2% in FY 12.

The 8.6% real GDP growth forecast is a minor revision from the earlier forecast of 8.7%. The downward revision is essentially in the mining sector, CMIE said.

2011-12 has got off to a mixed start as the timely onset of the monsoon and its progress through June and early July was good enough to ensure a good harvest. The government has also raised the minimum support prices very substantially to enthuse sowing.

However, industrial production growth rates have been poor during April and May at around six per cent. Concerns regarding inflation continue as it has remained at very high levels of around 9%.

Expectations of further interest rate hikes therefore continue to prevail. Data from rating agencies suggest an increase in risk.

The share of non-investment grade paper has risen from 39% in the second half of 2010 to 48.5% in the first half of 2011.

The hike in petroleum prices and reduction in indirect taxes on import of crude oil in June and an expectation of a small fall in the growth in raw material costs, however, have improved the profitability of the corporate sector, it said.

Many infrastructure sectors, such as railway and electricity have recorded good growth rates of 7.4 and 8.4%, respectively. Foreign trade has been very buoyant with growth of 38% in April-May and bank credit growth is
robust at over 20% even after 10 occasions of the rate hikes by the RBI.

CMIE's CapEx database suggest a revival in capex in FY 12 as nearly Rs 8 lakh crore worth of projects are expected to be commissioned during the year.

Most of the projects getting commissioned in FY12 are in the power and steel sector. The construction sector will be other big beneficiary of the expected capex boom.

We expected its growth to accelerate from 8.1% in FY 11 to 10.5% in FY 12, CMIE said.