Government sticks to 7% growth forecast for current fiscal

Despite the poor monsoon threatening to decelerate India’s faster-than-expected recovery so far, the government has chosen to stick to its forecast for the economy growing by 7% during the current fiscal. The economy registered a growth of 6.1% in the first quarter of the fiscal.

Chief economic advisor to the government Arvind Virmani has reiterated that the forecast of 7% economic growth should hold despite any shortfall in the agricultural production due to monsoon. He added that the clear picture of the exact impact of monsoon on agricultural production would be known by December only.

Indian economy growth slowed down to a five year low in the December quarter last year at 5.3%. However, since then, growth has subsequently improved to 5.8% and 6.1% (seasonally unadjusted figures) in following quarters, primarily on account of recovery in domestic consumption boosted by government’s fiscal stimulus efforts.

However, contrary to many other economists, Mr Virmani shrugged the concerns over inflation saying that point-to-point WPI was expected to be around 6% by March-end. But he did agree that the high consumer price index based inflation, particular in case of industrial workers, compared with the headline inflation, was a matter of serious concern.

His inflation projections however might be on the lower side when judged in light of the recent trajectory of price rise. While the RBI had projected 5% inflation by March in its quarterly review of monetary policy, a recent survey released by the National Council of Applied Economic Research (NCAER) had showed that inflationary expectations were increasing and most respondents expected inflation touching 8% by end of March 2010.