PM's economy panel cuts GDP growth target

The Prime Minister's Economic Advisory Council (EAC) said it was pruning its GDP growth projection for the year 2008-09 while proposing more monetary tightening to bring down inflation from a 13-year high. India's economy is expected to grow by 7.7% in the fiscal year ending March 2009, while inflation can be lowered to 8-9% during the same period through tighter monetary stance, the EAC said.

The high-level panel, headed by former RBI Governor C. Rangarajan, expects India's agriculture sector to grow at 2% in FY09 while manufacturing and services sectors are forecast to expand by 7.5% and 9.6%, respectively. The announcement comes two weeks after the Reserve Bank of India (RBI) trimmed its GDP growth forecast for the current fiscal year, from 8-8.5% to 8%, and raised the inflation target for the year to 7% from 5-5.5%.

In its economic outlook for FY09, the Prime Minister's panel said an adverse global economic environment was expected to lower growth in India, widen the current account deficit and pressure the fiscal situation through widening subsidy bills. The EAC sees savings rate at 34.5% of GDP in FY09 whereas the investment rate has been pegged at 37.5%. Capital inflows in the current financial year are expected to touch US$70bn, the Prime Minister's panel said.

The panel said fiscal deficit for FY09 would overshoot the annual target while revenue deficit would persist. It added that serious fiscal risks were arising from growing off-budget liabilities estimated at 5% of GDP. The mounting subsidies are adding to the pressure on Government finances, the EAC said, adding that fuel prices need to be raised regularly to curb fiscal deficit. The current account gap is estimated at 3.2% of GDP.