The Hindu Business Line : NCAER foresees 6.7 pc GDP growth this fiscal

THE National Council of Applied Economic Research (NCAER) has forecast the country's gross domestic product (GDP) growth during the current fiscal at 6.7 per cent against 8.13 per cent in fiscal 2003-04.

In its latest monthly bulletin, Macro Track, the council said, "Keeping in view the normal rainfall prediction on the back of a very high agricultural growth last year, it assumes that agriculture would grow at 3 per cent this year. This contraction in agricultural growth compared with 2003-04 would lead to a reduction in overall demand as well. This would have an impact on industry and services growth."

Though the industrial sector is expected to remain buoyant during 2004-05, there would be a deceleration in growth compared with last year, and the industry would clock a growth of 6.8 per cent against last year's 7.5 per cent, according to council projections.

The relatively low growth in industry is mainly due to demand contraction as agricultural growth decelerates substantially.

Investment, however, is bolstered by higher foreign direct investment (FDI), but it would also slow down due to lower demand. The average wholesale price index is likely to grow at 4.3 per cent during 2004-05, the council said. It added that an upward revision of petro prices is imminent after the Lok Sabha elections in view of the hardening of oil prices in the global market.

This will certainly push the prices of fuel/power upwards, it cautioned.

On the trade front, even with an appreciating rupee, lower import costs would help exports to grow by 8.1 per cent in rupee terms and a comfortable 12.6 per cent in dollar terms in 2004-05. On the other hand, a stronger rupee would lead to more buoyant imports, with a projected growth of 10.4 per cent in rupee terms and about 15 per cent in dollar terms. The trade balance with the stronger rupee would lead to a trade deficit of 2.3 per cent of the GDP.

The council said its prediction of 6.7 per cent GDP growth for the current fiscal is based on, among other things, a normal monsoon and agricultural growth of 3 per cent, average agricultural price rise of 4 per cent, a spurt in Government consumption by 10 per cent in nominal terms, an increase in Government investment by 10 per cent and no change in average indirect domestic tax rates.

The council's growth model also assumes a nominal appreciation of the rupee by 4 per cent against the dollar, a growth of 4 per cent in world GDP, an increase of 4 per cent in FDI and a customs tariff reduction of 5 per cent and special additional duty reduction across the board for the non-agricultural sector.

Stating that the economy is in the grip of a number of positives, it said the expectation is that with a normal monsoon, fiscal 2004-05 is "again going to be a year of good growth. Foreign exchange reserves, which currently stand at $112 billion, are expected to touch $150 billion by the end of 2004."