Economy is expected to grow by 7.2 per cent in 2005-06, a notch higher than Reserve Bank of India's estimate of 7.0 per cent, even as inflation concerns remain high due to volatile world oil prices, economic think-tank NCAER has said.
In its quarterly economic report, National Council for Applied Economic Research said fiscal deficit target may be met, as laid out in fiscal responsibility legislation mainly due to buoyant industrial sector particularly manufacturing.
"In view of strong macro fundamentals as low interest rates, controlled inflation and rising forex reserves, it is unlikely that the economy will suffer any major setback on the growth front. Moreover, monsoon has once again been predicted to be normal," it said.
But it warned that there are downside risks originating particularly from high and uncertain oil prices and in view of the share of agriculture in GDP falling to lowest ever level of 20.5 per cent.
About fiscal deficit in the country, it said a great deal hinges on the centre's performance in revenue mop up as the states were not in pink of their financial health.
With continued buoyancy in industrial sector, fiscal deficit target for 2005-06 is likely to be achieved, it said, adding, "on the face of it, the targeted revenue growth in 2005-06 looks plausible because of continued buoyancy of the industrial sector in general and manufacturing in particular."
Finding that global oil prices were highly volatile, it said, "an upward revision of petro-prices, which is due now, may again push the prices of fuel upwards."
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