With slackening demand hitting Indian trade more than anticipated, the Prime Minister’s economic advisory council (PMEAC) has lowered India’s growth rate forecast to 6.5-7 per cent from an earlier projection of 7.1 per cent for 2008-09.
“It (growth rate for 2008-09) may go somewhere around 6.5-7 (per cent), that is the current estimate... 7.1 per cent was earlier estimate, obviously it has to be lower. Because contraction of trade turned out to be much greater than it was anticipated,” PM’s Economic Advisory Council Chairman Suresh Tendulkar said here.
In January, the PMEAC revised down its growth projection to 7.1 per cent for 2008-09 from 7.7 per cent projected earlier due to “painful adjustments to the abrupt changes in the international economy”.
Even the Central Statistical Organisation’s advance estimates have pegged the growth rate at 7.1 growth for 2008-09.
Tendulkar said the global crisis affected the Indian economy through export and export-related industries and capital outflows, which took place not because of lower profitability but foreign institutional investors had their obligation to meet back home.
“There was deeper than expected recession in advanced countries. The psychology of gloom and doom that was essentially pervaded in the industrialised countries was imported to this country,” Tendulkar said.
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The Indian financial markets are also integrated with the rest of the world and so they were also hit, he said.
To boost the economy, the government came out with three stimulus packages — in December last year, in January and in the interim Budget in February — providing incentives to various sectors.
The Reserve Bank of India also took monetary easing measures by infusing more than Rs 4,00,000 crore since October.
However, Indian economy could manage only 5.3 per cent growth in the third quarter of 2008-09 as industrial growth turned negative in October and December.
Despite stimulus packages, industrial output again fell in January.
Besides, exports declined for the fifth consecutive month in February after it had a good run in the first half of 2008-09, growing by over 30 per cent. But orders got cancelled and exporters found it difficult to get new bookings, thereafter, with demand slackening overseas due to global financial crisis.
As a result, from October onward, exports have been on decline, with overseas bound shipments falling by 21.7 per cent, the lowest in 13 years, in February.