Agriculture and private investment, fuelled by growth in exports, will drive a turnaround in the economy, pushing the gross domestic product growth rate to 7 per cent in the current fiscal, the National Council for Applied Economic Research said. It revised its earlier forecast of 6 per cent growth on account of the monsoon-induced turnaround in agriculture.
In its quarterly review of the economy, the thinktank, however, said an 8 per cent growth in the medium term would be difficult to achieve without reforms. The average gross domestic product growth forecast for the period between 2003-04 and 2007-08 was 7.05 per cent.
For the current fiscal, NCAER has stated that while agriculture would grow 7 per cent as against a decline of 3.1 per cent last year, the services sector would clock 7 per cent growth.
The manufacturing sector was expected to grow between 5.7 per cent and 6.5 per cent. Higher appreciation of the rupee would pull down growth in industry and the services sectors.
The hardening of rupee was unlikely to hamper the achievement of the export growth target of 12 per cent in dollar terms. However, an appreciating rupee and the increase in industrial activity would push up imports growth, leading to a wider trade deficit and a marginal surplus on the current account.
High overall economic growth and the hardening rupee would make imports cheaper.
Together, they will pull inflation down to 2.9-3.8 per cent during the full year from 4.4 per cent in June. The fiscal deficit would, however, be higher at 6 per cent of the GDP at market prices compared with the government's Budget estimate of 5.6 per cent of GDP.
In the current fiscal, even drought-prone Rajasthan and Gujarat have had an unusual excess of rain.
The bumper crop would not depress prices enough to hurt growers because the government would increase procurement in view of the low food stocks. The Food Corporation of India would open 100 new procurement centres in states where farmers are currently not getting the benefit of the minimum support price scheme.
While this would worsen the fiscal deficit, it would improve rural incomes and push demand for certain segments of industry, providing further impetus to the process of industrial recovery.
The industrial sector clocked growth over 5 per cent during the last four quarters, indicating a sustained recovery. Easing of interest rates and revival of investor confidence in the stock market helped the overall scenario, it said, adding that the main impetus in the stock market, however, had come from FII inflows.
The Centre's fiscal position looks somewhat better due to the states' debt-swap. In April to August this year, loan recoveries shot up to Rs 36,676 crore (Rs 366.76 billion), pulling down fiscal deficit in the period to Rs 43,467 crore (Rs 434.67 billion).
However, the government's intention of retiring its debt to the National Small Savings Fund will push up fiscal deficit, the review added.
In the medium term, the GDP growth during the next fiscal was expected to be lower due to a fall in agricultural growth.
Services, infrastructure and manufacturing would be the main drivers of growth after 2003-04, it added.
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