CMIE sees 6% growth, yearly inflation at 5%

Faced with prospects of a slowdown in the agriculture sector, the Centre for Monitoring Indian Economy (CMIE) yesterday lowered its estimate of economic growth in 2004-05 to 6 per cent from the earlier forcast of 6.3 per cent.

The projected fall in overall agriculture sector growth to 0.8 per cent from earlier estimate of 2.7 per cent for the current fiscal will impact the gross domestic product (GDP), the economic think-tank said.

The real GDP for the financial year 2004-05 is expected to grow at 6 per cent as against the rate of 6.3 per cent projected earlier, CMIE said in its monthly economic review released here.

The erratic progress of the monsoon has adversely affected sowing operations for the kharif season. The average food production is expected to fall by one per cent to 208.8 million tonnes in the current fiscal year ending March 2005.

The non-foodgrain crop segment is projected to grow at 1.4 per cent and livestock and forestry and fishing are likely to grow at 5 per cent, it added.

On industrial production, CMIE said the Index of Industrial Production (IIP) grew by 7.5 per cent in April-May.

The chemical and machinery sector grew by an impressive 25.6 per cent and 20.5 per cent respectively in May. Both these sectors have high weightage in the IIP, it said.

However, the food products, jute textiles and textile products, including readymade garments and transport equipment sector showed a decline, it said.

The decline in the transport sector came after a long spell of impressive growth and IIP was expected to grow at 6.4 per cent in 2004-05, it said.

On prices the CMIE said, the inflation measured in Consumer Price Index (CPI) and wholesale price index (WPI) is estimated to average around 3.5 per cent and five per cent respectively in 2004-05.

"Inflation, as is commonly understood, has not really reached a high of 7.5 per cent as the WPI makes it out to be.

It is more correct to say that roughly, the producers' price index has increased by around 7.5 per cent," CMIE said.

Producers are unable yet, to pass on these costs to consumers.

Public action in reducing tariff and non-tariff barriers against import of sugar and edible oils would ensure that the consumer prices do not spike by festival time between September and November, the economic think-tank said.

"Both these commodities are in short supply and tariffs are high at around 60-70 per cent in both cases,"CMIE added.

It would be equally wise to reduce import tariffs on basic metals whose prices have been rising very sharply in recent months", CMIE added.

It is difficult to predict government action on these counts. "However, assuming that there would be some action if prices did rise any further, we believe that inflation in the CPI will average at around 3.5 per cent and the WPI at around 5 per cent during 2004-05", it said.