Tuesday, July 17, 2007

Indian economy seen growing at 9 percent in 2007-08

by Vipin Agnihotri

If the Indian Prime Minister’s Economic Advisory Council is taken into account, country’s inflation rate would be contained within 4 percent and the economy would grow at 9 percent. But for that to happen, the economy’s managers will have to take few hard decisions such as minimizing the inflow of external debt and more importantly allowing the rupee to appreciate further. Interestingly, Council is of the opinion that the growth would be led more by investment rather than by consumption.

In my opinion, the high base and dip in money supply growth will play a prominent part in containing inflation. There are some suggestion in various media circles that this year agriculture will grow by 2.5 percent, industry by 10.6 percent and services by 10.4 percent. In addition, the council expects the combined fiscal deficit in FY08 to be at 5.2 percent of the gross domestic product. At this moment of time, current account deficit is at 1.5 percent of GDP.

To moderate the impact of capital flows, it is of paramount importance that Indian government used a judicious mix of instruments. The Prime Minister’s Economic Advisory Council expects the minimum reserve accretion to be at USD 40 billion this year. Council also added that the economy might overheat in case if infrastructure is not augmented.

 

 

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