CII revises GDP growth forecast to 7.2 per cent

In the latest release of its quarterly survey the economy until September 2003, the industry association said it was revising its growth estimates upward because of "excellent monsoons, higher foodgrain output and agricultural income, and significantly better performance of the industrial, manufacturing and service sectors".

The study said given last year's low base, agriculture growth was likely to be as high as 7.5 per cent. Industry and services sectors were expected to grow at 6.3 per cent and 7.5 per cent respectively, maintaining their current trends. "This takes our GDP growth forecast for 2003-04 to 7.2 per cent," the survey said.

The CII also said "if this growth impetus continues for the next two quarters India will be seeing the beginning of a much needed investment cycle, as companies start building larger capacities to meet greater demand."

The CII has predicted agricultural sector""agriculture and allied activities accounts for approximately 24 per cent of GDP ""growth of 7.5 per cent.

This is not an optimistic prediction, the association said, given that there was a significant reduction in agricultural output because of the drought in 2002-03, and that the growth would be over a smaller base. "Indeed, given decent rains in the winter months, it is quite possible that agricultural growth could exceed even 8 per cent", said Onkar Goswami, CII's chief economist.

The industrial sector -- which consists of mining, manufacturing, electricity and construction - accounts for around 26 per cent of GDP. According to CII, this sector is expected to grow at 6.3 per cent for 2003-04. "Order books of companies in the manufacturing sector are more full than they have been in the last four years", said Goswami.

First half revenues have been higher than before, profitability is up and there is a general sense of optimism -- which has been reflected in CII's latest Business Outlook Survey.

The services sector, which now accounts for half of India's GDP, is expected to grow by 7.5 per cent. "For eight of the last ten years, in good years as well as in bad, the services sector has registered growth in excess of 7 per cent, and has often crossed 8 per cent," Goswami said. "Therefore, we at CII see no reason why the services sector should not grow by at least 7.5 per cent in a year as good as 2003-04," he added.

CII explained that agriculture will contribute 1.8 per cent growth to the overall GDP (7.5 per cent agricultural growth multiplied by a weight of 24 per cent).

Industry will contribute 1.6 per cent to GDP (6.3 per cent growth multiplied by a weight of 26 per cent). And services will contribute 3.75 per cent to GDP (7.5 per cent growth multiplied by 50 per cent). Thus, the overall GDP growth for 2003-04 is expected to be 7.2 per cent.

In the previous issue of the State of the Economy (covering March-June 2003), CII had forecast GDP growth for 2003-04 in the range of 6.5-6.8 per cent.

Goswami said that "to sustain this excellent growth in the future, India needs to focus on accelerating the process of economic reforms and to concentrate on building infrastructure."