Search the Internet          Tips  Sites: Finance, Investment

CII forecasts 5.2% growth in GDP in '02-03

The Confederation of Indian Industry has predicted a 5.2 per cent growth in the gross domestic product in the current financial year in a low-reform scenario.

A growth rate of 6 per cent is also possible if the economy benefits from some limited reforms and a slightly stronger sectoral recovery, the chamber has said.

The two sets of preliminary forecasts for the country's GDP growth this year were made in a quarterly review of the economy released by the CII.

In a low-reform scenario, the agriculture sector is expected to grow at 3 per cent, industry at 4 per cent and services at 7 per cent, the chamber has said.

CII believes that India is unlikely to see growth rate exceeding 6 per cent in 2002-03 without focusing on structural factors, especially the poor state of physical infrastructure.

The CII quarterly review has also reported aggregate financial results of various industries for the first three quarters of 2001-02.

Profitability has been eroded in manufacturing and services sectors. A sample of 1,443 companies in the manufacturing sector shows that profit after tax has declined by a record 14.4 per cent.

The profit after tax of 355 companies in the services sector has declined by 5.3 per cent, according to the survey.

CII has also expressed concern about the size of the combined fiscal deficit of the central and state governments, "which is as bad as it was in 1990-91, when the country last faced a major macro-economic crisis".

While expressing confidence in the country's balance of payments situation, (the Reserve Bank of India's reserves at the end of March 2002 amounted to an all-time high of $54.2 billion), CII has said the large foreign exchange reserve has much to do with low growth and low import demand.

According to the industry chamber, the country's high level of foreign reserves can be viewed as an expensive embarrassment of riches.

Using data from the RBI and international sources, CII has tracked exchange rate movement over the past two years.

Although the rupee has depreciated against the dollar, it has appreciated against other major currencies such as the pound, the euro and the yen, it has concluded.

"Also, the rupee is overvalued by at least 6 per cent when measured in terms of the real effective exchange rate," says the chamber.

The quarterly review has also delved into the repercussions of allowing full capital account convertibility.

Contrary to popular views, CII has argued that given the inflexible and high real interest rates in the country, the rupee might appreciate in the short run due to a spurt in the inflow of 'hot money'. But, it could erode the competitiveness of India's manufacturing sector.

The chamber has suggested that the country must first get its fiscal deficit in order and financial sector in shape before allowing the full capital account convertibility.

Agencies

ALSO READ:
The Rediff Budget Special
Money
Business News