Rangarajan lowers earlier 8% GDP growth estimate

With major sectors of the economy showing signs of slowdown, the list of those pegging India's economic growth at below eight per cent in the current financial year is expanding.

C Rangarajan, chairman of the Prime Minister's Economic Advisory Council (PMEAC), had earlier estimated GDP growth at eight per cent in 2011-12.

"The economy will grow in the range of 7.5-8 per cent...it may be 7.8 or 7.7 per cent," he said.

GDP grew at a six-quarter low of 7.7 per cent in the first quarter. However, PMEAC is yet to officially revise its estimate of 8.2 per cent.

Rangarajan had already scaled that projection down to eight per cent. While doing so, he'd pegged the economy to grow by 7.9 per cent in the second quarter and then 8.3-8.4 per cent in the third and fourth quarters.

There are signs of  slowing down in the second quarter. Industrial growth was below five per cent for the second month in a row this August.

The widely-tracked HSBC purchasing managers' index (PMI) for services contracted for the first time in two and a half years in September. The PMI for manufacturing for September was also the lowest in two years.

Last week, the Reserve Bank of India (RBI) went for a 13th rise in policy rates in 19 months, to tame the over nine per cent inflation.

In its recent policy meet, the central bank also lowered the GDP growth forecast to 7.6

per cent from eight per cent earlier. It has also hinted at a pause in rate rises, with growth becoming a cause of concern.

Most economists have also cut their GDP growth estimate for India. The finance ministry's chief economic advisor, Kaushik Basu, had pegged the economy to grow between 7.5 per cent and eight per cent, while the Economic Survey authored by his team had earlier projected GDP growth at nine per cent for 2011-12.

While finance minister Pranab Mukherjee was still hopeful of the economy growing by 8-8.2 per cent, he did refer to most observers expecting India's growth to go below eight per cent.

At the Economic Editors' Conference recently, he had said even sub-eight per cent growth should be analysed in the context of the global situation.

"There is slowdown all over the world. In the second quarter of this calendar year, the US economy grew by 1.6 per cent and the European Union economy grew by 1.7 per cent," he had said.

He had also noted that among G-20 countries, only Australia witnessed a faster growth rate in the second quarter of 2011, compared to the first quarter. Indonesia had the same growth in both quarters, he had said.

India's economy grew at a slightly lower rate in the first quarter of 2011-12 than the 7.8 per cent in the fourth quarter of 2010-11.