NCAER hikes GDP forecast to 8.9%,Volatility in stock markets

New Delhi, Oct 31 (UNI) The National Council of Applied Economic Research (NCAER) revised upwards its GDP forecast from 8.5 per cent in August to 8.9 per cent, primarily on account of better performance of the agricutural and services sector, but warned of significant volatility of stock markets.

According to the revised forecast the agriculture sector is poised to grow at 3.8 per cent up from 3.4 per cent projected earlier.

''The agricutural sector is expected to post a healthy performance'', the Review said.

A combination of floods in some parts and moderate drought-like conditions in other areas, may have some adverse impact. Yet, the indications suggest that the country is set to witness record harvest in the Kharif season. The first Advanced estimates of the Agricultural output for the kharif season released by the Ministry of agriculture also give credence to this view, it said.

The other factors that have led to higher growth are exogenous -- better price conditions for agricultural products for this year.

The NCAER, however, did not change its estimates for the industrial sector and retained its growth at nine per cent.

The services growth forecast has been improved from 10.1 per cent in August to 10.6 per cent in October.

Incidentally, services have posted a nearly ten per cent growth since 2005-06.

In 2005-06 services posted a ten per cent growth, in 2006-07 the growth of this sector was 11.2 per cent, in April services growth forecast was 9.9 per cent.

From among the services, telecom and financial sectors have continued their growth momentum during the period April-August 2007.

''Overall, the optimism on the growth of services sector during 2007-08 has not diminished'', the Report says.

The Review expects significant volatility in the capital markets linked to international financial conditions. ''We retain the assumption of foreign capital inflows of additional three billion dollars during the year over the levels of last year,'' the Report said.

The NCAER projects interest rates to be on the average at the same level in 2006-07.

The Review says the climate for investment remains "positive" as interest rates show signs of easing and external interest of investment in Indian assets rises. However, the consequence of these capital flows, namely a strong rupee, is affecting export earnings.

The tax relief to the exporters may have offset some of the decline, but the exchange rate trends suggest that export earnings would continue to be under pressure.

Although the incremental flow of bank credit to the commercial sector declined during the period, deposits have increased at over 10 per cent, the Review said.

The Review listed the positive and negative factors in the present economic situation.

The positive factors include - inflation rate being slightly lower than during the previous year; some easing of interest rates towards the end of first half of the current year, and strong inflows of external capital in the form of portfolio funds.

The negatives include lower growth of bank credit to the commercial sector, hardening of petroleum prices in the international markets and slower growth in exports, especially in rupee value, which determines the profitability of exporters.

The Review projects fiscal deficit of the Centre slightly higher at 3.3 per cent of GDP up from 3.2 per cent in August.

The Review expects net invisible receipts to grow by 30 per cent in dollar value.

The Review says the lower rate of inflation is likely to reduces the growth in tax revenues, but projects the curent account balance to be lower mainy on account of exchange rate appreciation.

UNI