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GDP growth to stabilize around 7%: CMIE
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March 16, 2009 16:44 IST

India's real GDP is projected to grow by seven per cent in FY 10, the Centre for Monitoring Indian Economy said in its monthly review.

CMIE expects the growth rate to climb slowly from around 6 per cent in the first-half to about 8 per cent in the second-half of FY 10.

The real GDP would be close to the 7.1 per cent growth, that is likely to be achieved in FY 09. The global liquidity crisis in late September 2008 has suddenly brought the economy's story of 9 per cent growth to a grinding halt. FY 10 would gradually recover from this jolt.

Signs of recovery are already evident in the little data that is available for January 2009. While the global economy seems to be getting into a deep crisis, the domestic Indian economy is likely to see a smarter and quicker recovery in FY 10, it said.

The agricultural sector has traditionally been the principal source of volatility in the overall growth of the Indian economy. A decline in GDP growth is usually the result of a fall in agricultural production.

In the last ten-year period ending 2005, the agricultural sector recorded a fall in output in every alternate year.

CMIE pointed out that this seriously debilitating trend seems to have been reversed. The agriculture sector has registered positive growth for four consecutive years--from FY 06 to FY 09.

CMIE expects it to register a positive growth rate again for the fifth consecutive year, in FY 10.

We expect the growth rate to slow down to 2.4 per cent. Nevertheless, a fifth consecutive year of positive growth in agriculture would contribute directly to the growth in FY 10 and would have a positive impact on domestic demand, CMIE report said.

The agriculture sector registered a 2.2 per cent fall in output in the third quarter of FY 09. This decline was not expected, although it comes after a 2.4 per cent fall in kharif sowing and, it comes over a high base since the corresponding quarter a year ago had seen a growth of 6.9 per cent.

We believe that at least a part of the fall may get corrected with revisions in agriculture production data. This is likely to happen in the case of cotton and to a small extent in the case of rice.

The fall of October-December 2008 does not dilute the new confidence in agriculture because production is increasingly shifting in favour of the Rabi season. And, while Kharif sowing was down by 2.4 per cent, Rabi sowing is up by 3.1 per cent. Higher MSPs and market prices have spurred sowings in favour of cash crops, CMIE said.

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