Indian economy to grow at 7%

By agencies   |   Friday, 29 July 2005, 07:00 Hrs
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MUMBAI: India's economy is expected to expand at a faster clip than previously forecast in the fiscal year to March 2006, as companies step up output to meet robust demand as rural incomes are boosted by monsoon rains. The median forecast of a Reuters quarterly poll of 11 economists, conducted after China's Yuan revaluation, showed gross domestic product (GDP) in Asia's third-largest economy would expand 7 percent in 2005/06, higher than 6.6 percent forecast in May.

India's farm-dependent economy grew 6.9 percent last year, after a blistering 8.5 percent expansion in 2003/04, the fastest in nearly 15 years, as the best rainfall in a decade boosted harvests and rural income. India's industrial output, which accounts for a quarter of GDP, surged 10.8 percent in the year through May as the country made vehicles, televisions and machinery at a hot pace.

The four-month monsoon, which got off to a slow start in June but has since gathered pace, is vital for India's poorly irrigated farms as erratic rains can hurt crops and income in rural areas where two-thirds of the billion-plus population live. Many analysts said the rupee would gain against the dollar in 2005 after China revalued its Yuan and on surging foreign investment in Indian shares, which has exceeded $6 billion so far this year.

In 2004, the rupee gained nearly 5 percent helped by record overseas portfolio inflows of $8.5 billion. But India's central bank, concerned about a widening trade deficit, is expected to curb rupee strength to ensure exports stay competitive. The central bank intervened to pull the rupee back from a six-year peak last week. The poll forecast the rupee would rise to a median 43.3 per dollar by December and 43 by the middle of 2006 from 43.45 on Thursday. Costlier oil, the country's biggest import, and other purchases to meet robust demand will continue to boost India's trade deficit.

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