GDP growth to fall to eight per cent this year: Rangarajan

Bangalore, Jun 19 (UNI) The Indian economy, battered by the rising inflation due to both domestic and international factors, is likely to witness a moderate eight per cent GDP growth 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's projected the GDP growth at 8.5 percent.

However it is only likely to be at eight per cent.

"This will be as a consequence of a 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 agricultural sector had achieved last year, while global concerns has brought a slowdown in the growth of service sector," he said.

In all growth in the current can be robust, even though the growth rate would be lower than the previous year, he said.

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 10 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 inflation rate. Domestically, significant expansion of money supply that was growing at 20 per cent and supply side bottlenecks had contributed to high inflation rate. It was hoped that crude oil prices would stabilise at the current level, he said.

However there were some favourable factors in sight. The procurement of wheat which was at 22 million tones, 100 per cent more than that was done last year, and indication of good monsoon this year may contribute to moderating inflationary expectations, he said.

Nevertheless the inflation rate is likely to fall only during this December and nor any earlier. "I feel it may fall to seven per cent in December," he said.

He said the rate of economic growth would remain robust in the medium term as the country as macro-economic parameters were in the right direction. The country had a healthy domestic savings rate at 34.4 per cent of the GDP while the gross investment rate was at 35.5 per cent.

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