GDP growth to fall, inflation to touch 10%: Rangarajan

Bangalore, June 19 (UNI) Battered by rising inflation due to domestic and international factors, the Indian economy is likely to witness a moderate GDP growth of eight per cent during the current financial year, Chairman of the Economic Advisory Council to the Prime Minister C Rangarajan said today.

Delivering Sir Vithal N Chandavarkar Memorial Lecture on 'The Indian Economy: Challenges Ahead' at the Indian Institute of Science here, he said the Council had projected the GDP growth at 8.5 per cent. However it was likely to be only eight per cent.

''This will be a consequence of moderation in growth rates of agriculture and services as compared to previous year.

''The country will not be able to sustain the 4.5 per cent growth its agriculture sector achieved last year, while global concerns have brought slowdown in the growth of the services sector,'' he said.

However, the current year's growth can be robust though it will be lower than the previous year.

Dr Rangarajan said the inflation rate reaching 8.75 per cent was indeed extremely uncomfortable but worse times were ahead for the country. Due to recent hike in the domestic oil prices, inflation could rise to ten per cent in the coming weeks.

He said international factors like high crude prices, drought in Australia that reduced wheat output or increased use of corn for bio fuel had contributed to higher inflation.

Domestically, significant expansion of money supply, growing at 20 per cent and supply side bottlenecks led to high inflation.

It was hoped the crude oil prices would stabilise at the current level.

However, there were also some favourable factors. Wheat procurement at 22 million tonne was 100 per cent higher than last year and indication of good monsoon this year may contribute to moderating inflationary pressures.

Nevertheless, the inflation rate is likely to fall only during this December and not any earlier. ''I feel it may fall to seven per cent in December,'' he said.

He said economic growth would remain robust in the medium term as macro-economic parameters were in the right direction.

The country had a healthy domestic savings rate of 34.4 per cent of the GDP with gross investment rate at 35.5 per cent.

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