CII ups growth forecast for Indian economy

By SiliconIndia   |   Tuesday, 29 July 2003, 07:00 Hrs
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The Confederation of Indian Industry (CII) has upped the growth forecast of the economy. According to the CII Growth Forecast for 2003-04, the agricultural output should increase by anything between 4 percent to 5.5 percent, if rainfall remains as good as it has been so far.

NEW DELHI: With the industrial growth expected at 6.5 percent and services at 7.5 percent, the CII has revised the growth forecast upwards.The upper limit has been fixed at 6.8 percent.

Dr. Omkar Goswami, Chief Economist, CII stated this, in his presentation of the state of Indian economy at the CII’s National Council Meeting held in Chennai on July 25, 2003. On the industrial front, Dr. Goswami said that IIP grew by 5.7 percent and manufacturing by 6.0 percent in May 2003. He however said that there is nothing to worry about the slight dip in April and May, this year. According to the CII presentation, the upswing that began around the middle of last year is poised to continue.

Dr. Goswami said that the economy has begun to see an upswing, with the growth of industrial sector in GDP by 6.0 percent compared to 3.3 percent in the previous year. Despite this improvement, the headline GDP numbers have been disappointing due to poor performance of the agricultural sector. However, this is all set to improve with the onset of encouraging monsoon in almost all parts of India. Talking on inflation, he said that the average inflation for 2002-03 was at 3.4 percent. However, it is harbouring at 5 percent and 5.5 percent, which according to CII is no cause for worry as it is largely driven by a rise in primary product prices. With good harvest, which is likely, expectations for 2003-04 are expected at 4.5 percent and 5 percent.

As far as the Infrastructure is concerned, the National Highway Development Plan (NHDP) Phase I is expected to be completed by December 2004, according to the CII presentation. As of May 31, 2003, 23 percent of the total length has been completed while 76 percent is under implementation. Dr. Goswami said that Phase II is still at a nascent stage and the funding requirement of 35,000 crore will be met by cess and market borrowing by NHAI, external funding and private sector funding.

Talking of telecom, he said that India has the seventh largest telecom network in the world, which is growing at an accelerated rate. According to CII, the cellular subscriber base has grown at 103 percent, increasing to 14.1 million in May 2003 from 6.9 million a year earlier. Dr. Goswami, in his presentation, said that domestic, long distance and international tariffs have been slashed encouragingly, which has led to encouraging volume growth. He however said that some major issues on the regulatory front and on TRAI’s ability to create a level playing field between fixed, GSM and ‘limited mobility’ needs to be addressed. On the Power front, Dr. Goswami said that the passing of the Electricity Act, 2003, is a step in the right direction. However, the Act is only an enabler and real reforms will occur when State Governments raise tariffs to marginal cost and true open access and wheeling comes into being.

On Balance of Payment Dr. Goswami pointed out that there has been a sharp rise in net invisible inflows (service + transfers) in 2002-03. Capital inflows have increased due to a rise in banking and other capital inflows. He said that net forex reserves have marked a growth of USD 28 billion since April 2002 and almost USD 9 billion since April 2003. Net FII investments in equities have increased sharply in June, he pointed out.

Focussing on the rapidly appreciating Indian rupee, Dr. Goswami stated that over the past year, the rupee has appreciated by 4.7 percent. The appreciation of the rupee during the last quarter has been particularly sharp. He said that it has now breached 47 and is threatening to breach 46 soon. Dr. Goswami said that he expects the rupee to rule below 45.50 by October, this year. On the overall fiscal deficit, he said that the overall deficit (Centre plus States) is unsustainable. The overall deficit is well over the 1990-91 ratio and said that CII’s estimate is in the region of 11.3 percent to11.4 percent of GDP for 2002-03, and will rise to12 percent in 2003-04.

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