Expecting some recovery from the economic slowdown, industry chamber Confederation of Indian Industry (CII) today projected the economy to expand by 6.1-6.5 per cent in the current fiscal as demand for consumer goods and services is likely to get a boost due to cuts in taxes and interest rates.
"In 2009-10, we expect some recovery to be driven by the decline in interest rates... Reduction in excise duty and service tax should also drive demand for consumer goods and services. We are therefore expecting GDP growth of 6.1-6.5 per cent in 2009-10," the CII said in a report on the 'State of the Economy.'
The chamber's projection is based on expected 2.8-3 per cent growth in agriculture, 5-5.5 per cent in industry and 7.5-8 per cent in services.
Under the impact of global financial meltdown, India's economic growth rate slowed down drastically to 5.3 per cent in the third quarter of last fiscal, from 8.9 per cent in the corresponding period of 2007-08.
For the first nine months of 2008-09, the growth rate stood at 6.9 per cent against nine per cent a year ago, making it difficult to achieve the projections of 7.1 per cent for the entire fiscal as estimated by advance estimates of the Central Statistical Organisation.
To enable India witness more decisive recovery, the chamber demanded further monetary easing by cuts in short term lending and borrowing (repo and reverse repo) rates by RBI by at least 50 basis points, implementation of large infra projects and reviving of confidence by ensuring a business-friendly environment.
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At a time when the global economy and global trade are projected to contract, it will be extremely important to maintain counter-cyclical fiscal and monetary policy, it added.
The drivers of economic growth have to come from domestic sources. The government therefore needs to maintain higher spending, especially in the creation of public assets, the report said.
Monetary policy, in turn, needs to be supportive. "Any pressure on interest rates to rise at this juncture will crowd out private spending," CII Director General Chandrajit Banerjee said.
The government-estimated growth for 2008-09 is 7.1 per cent. However, as per the RBI estimates, GDP growth would be around 6 per cent in 2009-10.
In view of the good performance of the agricultural sector, the chamber said that rural demand would remain strong.
"The fact that rural demand remains unaffected by global developments is a source of strength for the Indian economy," Banerjee said.