GDP likely to remain over 8 pc for FY07: ABB

New Delhi, Aug 30: With the manufacturing sector achieving its 10-year peak performance of 11.2 per cent in the first quarter of the current fiscal and services showing a booming performance, the overall GDP growth is likely to remain above the 8 per cent mark in 2006-07.

An Assocham Business Barometer (ABB) survey of India's top 270 CEOs and CMDs across various sectors of the industry and services has shown that India Inc remains surely positive about continuing the growth trajectory of the last three years.

The survey revealed that the concerns on high crude prices and rising global interest rates do bother the industry leaders who have lined up big time investments for capacity expansion to meet the growing demand in the domestic economy and in the export market.

However, the ABB respondents from eight out of ten sectors covered felt that the growing pace of consumer demand and the investment requirements would more than make up for the hiccups generated on account of higher interest and rising energy prices.

The sectors covered in the survey included capital goods, automobile, FMCG, chemicals and chemical products, pharmaceutical, gems and jewellery, textiles, oil and petroleum, information technology, and financial services.

CEOs from only two sectors, namely oil and petroleum and textile, opined that the increasing cost of raw material, wages and the continuous dismal performance of the agriculture sector could spoil the party.

The company heads in other eight of the sectors surveyed, however, remained optimistic about India achieving an average eight per cent growth for the fourth year in a row.

After a lackluster average performance of 4.6 between 2000-01 and 2002-03, India's GDP growth catapulted to 8.5 per cent in 2003-04, 7.5 per cent in 2004-05 and 8.4 per cent in 2005-06.

The industrial production and the services sector have remained the main drivers of the growth, the ABB survey stated. Services lead the table by staying in the double digit growth for 2004-05 and 2005-06 and the sector is likely to put out sterling performance in the current fiscal also, it added.

The share of services sector has risen sharply from 56.8 per cent of GDP in 2002-03 to 60.7 per cent in 2005-06. The industrial growth which shows promising potential for this fiscal had remained almost flat at 7.4 per cent in 2004-05 and 7.6 per cent in 2005-06.

It was manufacturing which stood out in the last two years and has achieved a 10-year peak performance of 11.2 per cent in April-June this year, the survey said.

According to ABB survey, 92 per cent corporate heads who were surveyed were concerned about the agricultural growth and were of the opinion that the farm sector needs massive reforms and big public investments to minimise its dependence on monsoon.

India Inc also felt concerned about the negative impact of the slow agricultural growth on a majority of rural population who remain outside the positive effect of the overall GDP growth. ''Unless we lift agricultural sector low-growth levels, the fruits of rising GDP would not show on the overall quality of life for a majority of Indian,'' Assocham President Anil K Agarwal said.

Part of the optimism for maintaining the plus 8 per cent GDP growth, the CEOs said, comes from vibrant performance in the external sector helping the merchandise as well as services exports maintaining good performance.

The merchandise export shot up by 40.67 per cent to 10.17 billion dollars in July 2006 as compared to 7.23 billion dollars in the same month last year. Increase in imports to 14.4 billion dollars in July this year was sharper at 42.8 per cent mainly because of the hardening of crude oil prices.

Though, the corporate chiefs were not comfortable with the rising interest rates, they remained confident that the increasing cost of money will not have any significant impact on industrial growth which will continue to remain above 9.5 per cent in the fiscal 2006-07.

While 89 per cent of the 270 CEOs said they are a worried over the interest rates which have gone up by 300 basis points in the last 18 months, 60 per cent of the respondents said that there will be only a 'slight impact' on the Index for Industrial Production (IIP).

They said the trend, evident in the first few months of the fiscal 2006-07 shows that the industry would continue to grow, even though the interest cost has increased. For the April-May period of the current financial year, the industrial production went up by 9.8 per cent.

This is because the percentage of interest cost in the total expenditure of the companies does not work out a significant level.

It averages between 1.33 per cent and 2.79 per cent.

Only 40 per cent of the CEOs surveyed by ABB said there would be 'slight impact' on the overall GDP which is likely to maintain the pace of around eight per cent. Unlike a few other surveys, the ABB projects the GDP level to be maintained above eight per cent for this fiscal.

Sixty seven per cent of the respondents agreed that RBI has struck a right balance between inflation and interest rates.

Majority of the CEOs, in the survey, said the rise in crude oil prices is likely to impact inflation.

''The Government has been far too slow in not increasing fuel prices when global oil prices have risen to very high levels. This will undermine the condition of all the oil and gas companies and result in lower funding to search for fuel and more important weaken their bids for international fields,'' they said.

As per the survey, the current interest rate should be capped in the interest of economic growth. The real estate business and the housing loans are expected to decline in the future because the rise in the interest rates has been mainly in these sectors, which are likely to have their bearing in the years to come, it said.

UNI