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GDP growth to reach 7.5 percent by 07
By agencies
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Wednesday, 02 March 2005, 20:30 IST
NEW DELHI: The recent drop in import duties announced in the budget will boost the GDP growth rate between 6.5 and 7.5 percent in the next two years, a report International banking giant Credit Suisse First Boston said. The report however states that the GDP growth is possible even as inflation is expected to fluctuate between 5 and 6 percent.
In the Budget presented Monday, Finance Minister P Chidambaram projected a GDP growth rate of 6.9 per cent in the current fiscal with 8.9 per cent growth in the manufacturing sector.
''The drop in import duties and tariffs in our view are likely to boost industrial production year-on-year to the 8 to 10 per cent range in FY 06 from 7.8 per cent in this fiscal,'' Credit Suisse First Boston said in its research on emerging markets.
The report said GDP growth will go up to 6.5-7.5 percent in the next two years from 6.7 per cent in this fiscal due to the expansion in aggregate supply. The Budget proposed reduction in corporate income tax from 35 to 30 percent, dropped peak tariff rates on non-agricultural products to 15 percent from the current 20 percent and cut custom duties on select capital and intermediate goods including petro products, industrial raw materials and petrochemicals.
''The overall implications of the policy changes in the FY 06 budget are that 10-year bond yields are likely to drop by 20 to 30 basis points in the next one to three months and the US dollar/rupee is likely to drop to 43 in three months' time. This will be 42.8 in six months' time,'' it said.
''We believe the risks of significant fiscal slippage in FY 06 are limited. We do not think the main issue is the headline fiscal deficit number for FY 06 in terms of whether fiscal slippage will occur,'' Credit Suisse First Boston added.