India's growth pegged at 8.7 percent, amid concerns

Friday, 29 February 2008, 05:11 Hrs
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New Delhi: India has grown into a trillion dollar economy with an anticipated growth of 8.7 percent for this fiscal even as poor infrastructure, rupee appreciation, inflation, lower export growth, failing farm growth and US slowdown pose some major challenges, says the official Economic Survey.

"There is no doubt the economy has moved to a higher growth plane, with growth in gross domestic product (GDP) at market prices exceeding 8 percent in every year since 2003-04," said the annual report card on the Indian economy.

"The decisive change in growth trend also means that the economy was, perhaps, not fully prepared for the different set of challenges that accompany growth," said the survey, tabled in parliament Thursday by Finance Minister P. Chidambaram.

"Rising growth to double digits will, therefore, require additional reforms."

The minister, who spoke to reporters soon after tabling the survey, said he was confident of the economy sustaining a 9 percent growth in the ensuing fiscal year given the sound foundation of domestic investment and savings.

"If you wish me to sum up in one phrase the outlook for 2008-09 then I would say 'optimism', but with caution as the 'watchword'. There are a number of things going in favour of India," he said.

"There are several challenges to inclusive growth - agriculture, infrastructure, education and skill development," he said. "Keeping inflation under control in an uncertain global environment will be one of the major challenges in 2008-09."

The survey said since the surge in capital flow from foreign institutional funds and as direct investment would continue in the medium term, inflation management will be a complex task - more so since the Indian economy was more globalised today.

The survey, authored by the finance minister's Chief Economic Advisor Arvind Vimrani, also spoke of several challenges, notably in the farm sector, and said the need of the hour was for a second green revolution.

Since 52 percent of India's workforce depended on agriculture, and the share of this sector had declined from 36.4 percent in 1982-83 to 18.5 percent in 2006-07, any further deceleration in its output will retard overall growth, it said.

The survey said there was also a heightened urgency to augment infrastructure, both physical and social, including power, roads and ports to meet the demand for infrastructure services and push development.

"This requires the mobilisation of an unprecedented amount of capital with macroeconomic stability, which can only happen if both the public and private sectors have the incentive and the motivation to perform at their best."

On the external sector, the survey said although exports to the US had been slowing, a further dip might be unavoidable. But it was confident of meeting the export target for this fiscal, having topped $111 billion in nine months.

The survey also lauded the reforms to encourage capital inflows and said: "On a gross basis, foreign direct investment inflows into India, after rising to $6.2 billion in 2001-02, has risen to $23.0 billion in 2006-07."

At the same time, outward investment by India shot up from levels less than $2.4 billion in 2003-04 to 2004-05 to reach $14.4 billion in 2006-07. "Thus, overall net foreign direct investment in 2006-07 was at $8.5 billion."

The survey also said the secondary market operations in India remained robust with the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) and the Nifty of the National Stock Exchange (NSE) giving 40 percent annual returns.

"The Indian capital market attained further depth and width during 2007," the survey said, adding: "BSE sensex scaled a high of 20,000 point mark at the close of calendar year 2007 and NSE index rose to close at about 6,100 point mark."

The survey said the 9.2 percent industrial growth during April-November 2007 was a mark of sustained buoyancy, albeit at a moderated level, when seen against the backdrop of the robust growth during the preceding four years.

It said while growth of capital goods had accelerated despite a high base in the previous years, auguring well for the industrial capacity addition, the consumer durables basket showed negative growth during the period.

"One of the biggest challenges to sustaining and stepping up industrial growth lies in removing the infrastructure impediments in road - both rural and urban - rail, air and sea transport and power,"

According to the finance minister, macro fundamentals of the Indian economy were not only strong and robust, but also continued to inspire confidence even as the investment climate was full of optimism.

"We need to capitalise on the opportunities while, at the same time, respond to the evolving situation in the global economy in a manner that our growth story is not affected."
Source: IANS
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