The Hindu Business Line : NCAER forecasts 8.3% growth for '07-08

The scenario
The export growth is projected to be slower at 15.7 per cent given the projected decline in world GDP growth by 0.5 percentage points.
The council cautioned that the medium-term solution to rising inflation lies in improving supply response.

New Delhi April 16 Against the advance estimates of 9.2 per cent gross domestic product (GDP) growth of the economy in 2006-07, the National Council of Applied Economic Research (NCAER) projects GDP growth to slow down in the inaugural year of the Eleventh Five-Year Plan (2007-12) to 8.3 per cent.

While the two successive years of 9 per cent growth in 2005-06 and 2006-7 have raised the possibility of sustaining these rates over the medium term, the council has said the rise in the inflation rate in 2006-07 has underlined the need for "more careful assessment of the options available to minimise the risks that may destabilise the growth impulses".

Stating that the global economic scenario that is unfolding points to the likely slow down in the pace of growth at the aggregate level, the council's latest quarterly review of the economy, discussed at its first seminar of 2007-08 on the state of the economy here said the real GDP growth for 2007-08 is forecast at 8.3 per cent with agriculture, industry and services growth rates at 2.6 per cent, 8.7 per cent and 9.9 per cent, respectively.

Inflation rate

The wholesale price index (WPI) based inflation rate is projected to be stable (growth of average price index for the year, year-on- year basis) at 5.3 per cent.

The export growth is projected to be slower at 15.7 per cent given the projected decline in world GDP growth by 0.5 percentage points and slower rise in international prices.

The merchandise imports are also projected to grow at a slower rate of 18.5 per cent. With the growth of the net invisibles by 20 per cent, current account balance is projected to be in surplus, the council noted.

The overall scenario that emerges for the current fiscal is that of slower output growth, but still in the same band of 8-9 per cent, it said, adding that the slower growth in external demand suggests the need for keeping the domestic economic conditions stable and favourable.

Monetary policy

The council said in the short term inflation is a major worry. The monetary policy response in the form of higher interest rates and tight money policy would adversely affect the sectors where credit is a critical input as in the case of housing and new investments.

It said that though there have been fiscal measures in the form of lower duties and taxes to provide some relief form high prices, the council cautioned that the medium-term solution lies in improving supply response. It said be it agriculture, infrastructure or industry, there is a need for new investment and policy would need to enable such investments.

In this context, it said policy initiatives such as Special Economic Zones might act as catalysts to specific sector but noted that the continuing changes in the policy have blocked further capital investment.

On foreign trade, it said the country's merchandise exports have decelerated during 2005-06 over 2004-05 and also during April-November 2006-07 over the corresponding period of 2005-06.

"The worrisome fact is that non-oil imports have registered sharp deceleration in 2005-06 over 2004-05. The deceleration was drastic during Apr-Nov 2006-07 when compared to the corresponding period of 2005-06", it said.

The council said the slowdown in imports of capital goods and raw materials show slowing investment activity and do not augur well for the growing economy.

"In the medium term, this might have a negative impact on overall economic growth," it warned suggesting "urgent steps to strengthen the competitiveness of India's exports".