Indian economy to grow by 8.2% in 2011-12: PMEAC

The Prime Minister's Economic Advisory Council (PMEAC) has released the Economic outlook for the current financial year. The council has revised the GDP forecast to 8.2% from 9% for current fiscal. This downturn revision in forecast is done due to inflationary pressure and slowdown in investment rate.

The PMEAC in its report expects Agriculture sector to grow by 3% in current fiscal from 6.6% in 2010-11, this moderation in agriculture growth is due to the below normal estimate of monsoon, which is expected to be in range of 90% to 96% of Long Period Average. Along with agriculture, PMEAC anticipates Industry sector (which include mining and quarrying, manufacturing, construction and electricity, gas & water supply), to slowdown in growth, for 2011-12, the PMECA forecasted industry sector to grow by 7.1%, which is less than 7.9% achieved in 2010-11. “The projected growth rate of 8.2%, though lower than the previous year, must be treated as high and respectable, given the current world situation,” PMEAC said.

The PMEAC chairman C Rangarajan said the economy has the potential to grow over 9%, and India could allow at least 49% foreign direct investment in all sectors except prohibited ones. The PMEAC has requested government to take reforms by improving regulations and governance by staying within the budget deficit, and ensuring continuity and predictability of policy and regulatory regime.

'While quite clearly we were able to negotiate the global economic crisis quite well, we have been unable to find our way back to the path of rapid asset creation and growth.' PMEAC report said. The policy drift has led to an 'unintended slowing down of initiatives to restore investment and economic confidence'. It also mentioned that stable government after the May 2009 elections and successful navigation through the financial crisis were a 'good opportunity to take those necessary steps' such as rolling out infrastructure, pushing reforms and improving the efficiency of social spending. 'However, we have lost time,' it added.

The PMEAC anticipate RBI to continue with its tight monetary policy standing for ‘quite some time’, with inflation at over 9% in October, dropping to 6.5% by March. Since March 2010, RBI has increased its policy rates by 11 times and on 26 July it’s hiked its short term leading and borrowing rates by 50 basis points.

The other economic indicators are also showing moderation in economic activities, the NCAER-MasterCard business confidence index released on 1 August fell to its lowest level since October 2009, a part of NCAER-MasterCard business confidence index which measures confidence in political management of economic policies declined 26 points to 77.6 in July.

The HSBC's Purchasing Managers' Index which measures manufacturing activities in economy also showed moderation, it fell to 20 month low level and dropped to 53.6 in July.

The Morgan Stanley also lowered its India GDP growth projection for the current financial year. Morgan Stanley projected Indian economy to grow by 7.2% from 7.7% made earlier. This projection is just above the 6.8% GDP growth achieved during the global financial crisis.