In all likelihood, India will end 2007 with 9 per cent growth in its gross domestic product. The question economists are grappling with is, can this growth momentum be maintained in 2008?

The International Monetary Fund says India will clock growth of 8.4 per cent in the coming year. HDFC Bank [Get Quote] Chief Economist Abheek Barua says it could be between 7.8 per cent and 8.3 per cent. Yes Bank [Get Quote] Chief Economist Shubhada Rao expects it to be on the higher side of 8.5 per cent.

Clearly, the odds are stacked against 9 per cent growth. There has been a marked slowdown in retail bank credit during 2007.

The situation is unlikely to improve in 2008. And then there are fears of a global slowdown led by the US. On top of that, the rupee is expected to strengthen further against the dollar in the coming year, making Indian exports uncompetitive in the world market.

Statistically too, high growth in the coming year could be a tough challenge. All indices will end 2007 on a high, and to top it with substantial growth will not be easy in 2008. Prime Minister Manmohan Singh's vision of a 10 per cent growth during the Eleventh Five-Year Plan could still be some distance away.

Unlike China, the Indian growth story is largely driven by domestic demand. Key sectors like steel, cement and commercial vehicles have grown on the back of strong demand from local markets. For this to continue, it is essential that interest rates should come down significantly so that people borrow more.

Interest rates, on their part, depend critically on the prevailing inflation. If prices rise, the central bank curtails money supply by raising key interest rates and vice-versa. And this is what could spoil the party for India.

The year 2008 will be the year when the United Progressive Alliance government will prepare for the next General Election slated for 2009. After its defeat in Gujarat, Prime Minister Manmohan Singh and Finance Minister

P Chidambaram will ensure that the economic situation does not hurt the poor. For this, they need to ensure that prices remain on a tight leash.

On the supply side, the indications are not too good. Crude oil prices touched an all-time high in 2007 and are expected to stay high in the coming year.

So far, the government has protected the consumers by issuing oil bonds. Most economists feel the protection for consumers will extend till the elections. Any hike in petrol and diesel prices, at best, will be minimal.

Food inflation is a different story. For instance, area under the wheat crop has come down as compared to the last season, leading to apprehensions that prices could rise in the days to come.

After two years, sugar prices are projected to climb in the months to come. Similarly, additional cement and steel supply could be way below the new demand.

With these supply-side constraints, the government would like the monetary policy to remain tight to control prices.

However, there will be pressure on the Reserve Bank of India [Get Quote] to lower interest rates to stymie the huge capital inflows that are happening from abroad. Still, a tight money supply could choke demand in sectors that have driven growth in recent times � housing, transport etc.

On the positive side, several CEOs of companies Business Standard spoke to said in one voice that they still expect domestic demand to grow in 2008 vis-�-vis 2007.

The Sixth Pay Commission is expected to give its award in 2008. There are 3.8 million central government employees including the railways and the armed forces. The state governments too are expected to hike the salaries of their employees in tandem. This, experts say, will further boost demand, especially in sectors like automobiles and consumer electronics.

Opinion on the impact of the external sector on the Indian economy in 2008 is divided. Some economists feel that the impending slowdown in export markets and the strengthening rupee (Goldman Sachs has predicted that it will appreciate to Rs 37.7 against the dollar by the end of 2008) will leave its mark on the Indian economy.

Exports (services as well as merchandise) now account for about 23 per cent of India's GDP. So, any slowdown is bound to impact the GDP. "I don't believe that Asia, including India, on its own will hold up against the slowdown in rest of the world. All major export markets for India are facing a downturn," says Barua.

However, services exporters say that any slowdown in the West could land them more business as companies there would look at ways to cut costs by off-shoring work to India. Also, a rising rupee has greatly helped exports of commodities like petroleum products and gems and jewellery, which are heavily dependent on imports.

"We don't see a very significant slowdown in growth in 2008 as India's growth is a domestic demand story. I expect investment expenditure to accelerate towards more infrastructure development which will be the major growth driver next year," says Rao.