New Delhi, Aug 13: Stating that the global slowdown was inimical to the Indian economy, the Prime Minister's Economic Advisory Council (EAC) lowered the GDP growth projection to 7.7 per cent during 2008-09 as against its earlier estimate of 8.5 per cent.
Presenting the Economic Outlook for 2008-09,' Outgoing Chairman of EAC C Rangarajan said inflation could be brought down to 8 to 9 per cent by March-end 2009 as a result of 'co-ordinated policy action.' Mr Rangarajan said it was necessary to maintain the tight monetary stance to put the economy on the right track. The economy grew by nine per cent in fiscal 2007-08 and has maintained an average of nine per cent in the last four years.
Dr Rangarajan and Dr Suresh Tendulkar, the incoming Chairman, were at pains to explain that a 7.7 per cent growth rate was no mean achievment coming as it is after four years of a high growth cycle and in a year where commodity and equity markets all over the globe have been turbulent.
The lowering of inflation rate by March would also be a result of recent cooling evident in world commodity prices and monetary actions by other central bankers.
"However, in view of the large backlog of fuel price adjustments achieving a reduction to seven per cent will take consierable effotrs and a conflueunce of favourable factors", the EAC Report says.
The Report projects a growth rate of two per cent for agriculture for 2008-09, as against 4.5 per cent in 2007-08. The projection for industry is 7.5 per cent for fiscal 09 as aginst 8.5 per cent in 2007-08.
In the case of services, the Report projects that the growth rate would be 9.6 per cent in 2008-09 as against 10.8 per cent in 2007-08.
The Report attributes the surge in prices in a large measure to rising global commodity prices.
The EAC warned that there were serious fiscal risks arising from growing off-budget liabilities, which had been estimated at fve per cent of GDP. It projected the fiscal deficit target to overreach while stating revenue deficit would persist.
Dr Rangarajan said the Current Account Deficit has been estimated at 3.2 per cent of GDP in 2008-09 as against 1.5 per cent in 2007-08.
The Report lists the factors that impact adversely on the Indian economy. These are lower growth, widening of the current account and the pressure on fiscal system through widening subsidy bill.
It says the economy was facing supply constrained on account of physical and social infrastructure and electricity, water, road rail transportation, urban and rural infrastructure and agriculture.
The Report while projecting an investment rate similar to 2007-08, forecasts the savings rate to decline. Investment rate has been projected at 37.5 per cent and savings rate at 34.5 per cent of GDP.
The lower savings are on account of worsening government finances and erosion corporate profits .
The Report projects capital inflows of 70.9 billion dollars in the current fiscal as aginst 108.03 billion dollars in 2007-08.
The net reserve accretion has been estimated at 29.4 billion dollars for the current fiscal as aginst 92.2 billion dollars in 2007-08.
The following are the projections made on the external front:
---merchandise trade deficit of 134.1 billion dollars. This is 10.4 per cent of GDP as against 7.7 per cent last year.
--- merchandise export growth rate at 31.4 per cent as compared to 23 per cent in 2--7-08.
---non-oil merchandise exports are projected to be 22.5 per cent higher.
---merchandise import growth rate is projected at 37.8 per cent as against 27 per cent in 20007-08;.
---crude oil imports to be 80 per cent. Non-oil, non-bullion imports 22.5 per cent higher.
---invisibles and trade surplus projected at 92.7 billion dollars.
This is 7.2 per cent of GDP as against 6.2 per cent last year.