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NCAER cuts down 2001-02 GDP growth rate to 5.6%

A leading Indian think tank on Friday lowered its gross domestic product growth forecast for the 2001-02 financial year to 5.6 per cent, giving up hopes of a revival of the country's sluggish economy.

The National Council for Applied Economic Research, which had earlier projected GDP growth to be in the range of 6.3-6.8 per cent, cited a poor investment climate and falling exports as reasons for lowering its forecast.

NCAER's quarterly review said the only silver lining was agricultural growth of 5.5 per cent, helped by good monsoon rains.

The central Reserve Bank of India has been sticking to its 6.0-6.5 GDP growth on expectations of demand revival helped by strong agricultural growth. India's GDP growth slowed to 5.2 per cent in 2000-01 after growing at 6.4 per cent a year earlier.

Good monsoons ensure a bumper harvest, leading to increased rural consumption in a country which has a high proportion of land under cultivation and nearly 73 per cent of households reside there. Agriculture forms 30 per cent of the India's GDP.

Depressed demand has taken a toll on the country's industrial growth which has slowed to 2.1 per cent in the first quarter of 01-02 from 6.1 per cent in the year earlier period.

Growth has been hit by a combination of low agricultural growth for the past two years, a slowing global economy and weak export growth.

NCAER pegged industrial output at 5.7 per cent and services sector growth at 5.8 per cent.

A weakening global economy would also leave India's export growth at 9.2 per cent, nearly half of the 20 per cent growth recorded in 2000-01, NCAER said.

India's merchandise exports recorded 1.76 per cent in April-June this year and analysts say the slowdown in the United States, India biggest market, could drag down growth in future.

The New Delhi-based think-tank said it expected the federal government's fiscal deficit to worsen and end around 5.8 per cent, far above government's target of 4.7 per cent set in the 2001-02 budget.

"Slippage of revenue receipt estimates as well as higher expenditures on account of food subsidies would lead to higher fiscal deficit," NCAER said.

The think-tank said a bumper harvest would mean an increase of Rs 20 billion in food subsidies due to higher government procurement. But it expects offtake through public distribution channels to remain stagnant leaving the government with further addition to its already bulging foodgrain stocks.

India ended last year with a higher than expected fiscal deficit of 5.2 per cent of GDP due to a shortfall in revenues.

NCAER projected the average inflation rate based on the wholesale price index to be at 5.4 per cent in 2001-02 due to low demand from its earlier estimate of 6.1 per cent.

Inflation rose to 5.22 per cent in the week ended August 4 from 4.96 per cent in the previous week and analysts say it is unlikely to shoot up in the medium term. They expect it to hover in the 5.0-6.0 per cent range.

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