"The analysis of several data series and simple macro-econometric modeling lead us to forecast GDP growth of 7.5% (plus/minus 0.25%) during 2011-12," the government said in the Mid-Year Analysis 2011-12 tabled in Parliament.
Citing global and domestic reasons, the government lowered the GDP forecast for the current fiscal to 7.5% from 9%. Mukherjee said that the current slowdown was mainly on account of industrial sector and " we are expecting some revival next year" and that it is possible toreturn to long-run 9% growth target.
Compounding with domestic factors like decline in industrial production, the global situation has led to a clear slowdown in the growth rate in the first half of 2011-12 to 7.3% from 8.6% year-on-year, it said.
Government said that India could be affected if Europe slips into recession, however, assuring that currently the external debt was at manageable levels.
"If Europe slides into proper recession, with all the attendant financial contagion that will no doubt affect other nations, the entire world economy will slowdown and we could also be impacted," it said.
On the growing concerns of inflation, the government expects that with demand side pressure moderating following withdrawal of fiscal stimulus and tightening of credit, overall WPI inflation is likely to decline December onwards.
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"The current fiscal may end with headline inflation of around 7%," it said.
It further said "maintaining the growth momentum in the economy with price stability is one of the biggest policy challenges that India is facing in recent times," the analysis tabled by Finance Minister Pranab Mukherjee in Lok Sabha said.
He also announced that the Plan Panel has approved Rs 14,000 crore for the Public Sector banks' capitalisation.