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India's GDP likely to grow by 7.7%: BankAm
By agencies
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Thursday, 05 January 2006, 20:30 IST
NEW DELHI: The Bank of America today said booming manufacturing and services sector will push up India's GDP growth to 7.7 percent in 2006-07, but inflationary pressure may lead to hike in interest rates.
However, Bank of America warned that cutting Fiscal Deficit as per FRBM Act is likely to remain a challenge in the absence of further budgetary reforms.
"In India, GDP growth is likely to remain in high gear at 7.7 percent in 2006-07, as economic activity continues to transition from the public to private sector," Bank of America chief economist Mickey Levy said in the report 'Global Outlook for 2006.'
Growth is likely to be more evenly distributed among varying sectors, with the manufacturing and services sectors maintaining forward momentum and agriculture benefiting from a normal rainfall.
Rising income levels will see inflationary pressure mounting in addition to the effect of the gradual pass-through of higher fuel prices in 2005.
"Wholesale Price Inflation is projected to average higher at 5.1 percent in 2006-07 compared to 4.6 percent in 2005-06 in part due to a low base this year," Levy's said.
Policy rates will remain on an up trend because managing the build-up of inflationary expectation continues to be an over-riding concern for Reserve Bank on strong growth momentum.
Though privatization of state-owned companies in a smaller scale will relieve fiscal pressure in the near term, achieving commitments under the Fiscal Responsibility Act will be difficult in the next fiscal in the absence of further budgetary reform.