The Hindu Business Line : S&P forecasts 8.6% GDP growth for 2007-08

Standard & Poor’s in its mid-year review has estimated India’s GDP growth to be at 8.6 per cent during 2007-08, a moderation from last year’s 9.4 per cent. The rating agency also felt that agricultural sector which is estimated to grow by 3.4 per cent would be a key contributor to this performance.

Talking about the industrial sector, Dr Subir Gokarn, Chief Economist, Standard and Poor’s, Asia Pacific, said, “The industrial sector, reflecting the cumulative impact of rising interest rates and rupee appreciation, will expand by 9.2 per cent, somewhat slower than last year, but still a healthy rate reflecting continuing buoyancy in investment spending. Services are expected to grow by 10 per cent, based on strong domestic demand.”

S&P estimates that the US subprime crisis is likely to get worse and that the US economy could see a sluggish growth and would grow at 2 per cent in 2007 and 2008. The credit losses from the US subprime crisis have been comparatively small. “Credit losses would be less than one per cent of the $16 trillion US mortgage market at $150 billion,” said Dr David Wyss, Chief Economist, Standard & Poor’s.

Dr Gokarn said that the pressure on the rupee to appreciate still remains. “Notwithstanding the widening trade deficit, the current account deficit remains well within the boundaries of expected capital inflows. Recent measures to curb external commercial borrowings and expand outward investment limits by Indian companies and individuals will not change the balance in the short term. However, we expect that the Reserve Bank of India will resist appreciation beyond current levels and the rupee will end the year at around 40.50 against dollar,” he said.

On interest rates Dr Gokarn said that the Indian interest rates were peaking, with the yields on government securities moving within a narrow range and banks beginning to soften lending rates in many segments.

“It is expected that the benchmark yield on 10-year government securities will remain in the range of 7.8-8 per cent until the end of the year - March 2008. The Reserve Bank of India is not expected to change the repo and reverse repo rates and the Cash Reserve Ratio (CRR) in its next quarterly announcement scheduled for October 30,” he said.

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