PM panel cuts growth projection to 8.9%
FARM sector growth, that almost made up for the slow down in the manufacturing sector in the first two quarters of the fiscal, is expected to support economic growth in the current fiscal at a shade below 9%, a top economy think tank advising the prime minister said on Thursday. The economy is expected to grow at 8.5% in the next fiscal, said C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council said here on Thursday. Policy makers, however, cannot rely on the mood swings of weather Gods and ignore the slow down in the manufacturing sector, particularly, consumer durables that showed a negative growth of 1.3% in the fist half of the fiscal compared to a positive growth of 12% a year earlier. Successive interest rate increases to fight inflation has taken a toll on demand for consumer durables as well as nondurables, said C Rangarajan. The manufacturing sector that has 79.4% weightage in the index of industrial production has dipped to 9.8% in the second quarter as against 11.6% in the year ago period. It grew at 10.4% during the first half, lower than 11.2% a year earlier. Electricity generation and mining were more or less the same during the comparable half years, making manufacturing sector the only culprit for the slow down in industrial output. The panel forecast an 8.9% growth for the 2007-08 fiscal based on robust agriculture growth expected to grow at 3.5% as against its July outlook of 2.5%. A reasonably good rabi crop and absence of weather anomalies would support growth the next fiscal. Farm sector has grown at this pace in each of the last three quarters compared to an average of 2.4% for past 20 quarters. Other risks that could play spoilsport are inadequate power supply and a severe recession in the US and Europe that would force them to cut back on their imports from developing world including India. Since India is less dependent on external markets unlike China, a mild recession in rich countries will not affect the country’s economy, Mr Rangarajan said here while releasing the review of the economy. However, the flip side is that the pressure on prices of oil, food and other raw materials is likely to continue, making inflation management in 2008/09 quite challenging, he said. Also, short falls in power generation could impact the economy more seriously in the coming months than ever. Asia’s third largest economy has been racing above 8% in the last 11 quarters on the trot and had scaled 10% in two quarters along the way. The panel also predicted that income per person will rise to 7.2% in real terms for the third successive year of above 7% real increase in per capita GDP. The economy would have a size of $ 1.2 trillion which translates to a per person income of above $ 1,000, the panel said.