The pre-Budget Economic Survey on Wednesday projected an inflation rate of around 5 per cent during 2004-05 largely due to hopes of lower prices in manufacturing group, which had accounted for nearly 80 per cent of inflation in 2003-04, besides low agri prices due to normal monsoon.

The Survey, tabled in Parliament, said there was a significant decline in inflation even during 2003-04 which has continued well into the middle of 2004.

Domestic deregulation and tariff rationalisation have resulted in greater competition, greater cost-efficiency and moderation of upward pressure on prices, it said.

• Economic Survey 2003-2004: Complete Coverage

"Barring the uncertainties of movement of international prices of petro products, there is reason to believe the inflation rate during 2004-05 would remain around 5 per cent as projected by the Reserve Bank of India," the Survey said.

It also observed that the structural decline in inflation has narrowed the differential inflation in developed economies.

The rise in prices of manufactured products goods during the first two months of 2004 was largely due to hike in prices of steel and sugar, it said.

The Survey said inflation for manufacturing sector, which remained above five per cent for part of 2003-04, averaging 5.7 per cent for the year, has shown signs of softening in the beginning of the current financial year.

"The rising inflation rates in food products (edible oils and sugar), basic metals (iron and steel), textiles and cement, which were the prime movers in 2003-04, have been arrested during 2004-05 fiscal," it said.

The point-to-point inflation, which was 4.4 per cent in the beginning of 2003-04, declined to 4.2 per cent in mid-May 2004 before crossing the 5 per cent mark marginally.

This was mainly due to seasonal increase in prices of fruits and vegetables in this part of the year, the Survey said.

Inflation had hovered around 5 per cent during 2003-04.

It said comfortable stocks position of foodgrains, which stood at 33.7 million tonnes as on May 1, 2004 as against the buffer norm of 15.8 million tonnes, is also a positive indicator for reining in inflation.

The Met department's projection of a normal monsoon (an early indication of which is the advancement of monsoon, 2004 by a fortnight resulting in widespread rainfall in the drought-affected southern peninsula) augurs well for the country, it said.

On its evaluation on the prices of primary products, it said the seasonality in primary product prices -- an uptrend during summer months followed by a downtrend during winter  months - was observed in 2003-04 as well, with price rise of Primary products (on a point-to-point basis) in the range of 5.7 per cent till July 2003.

Thereafter, prices softened and the inflation rate in this group hovered close to 4 per cent till end-January 2004. The inflation rate for this group declined further to below 2 per cent by end-March 2004.