Think tanks cut growth forecasts to 5.5-6.5%

The revised estimates of economic growth have put gross domestic product (GDP) growth for 2004-05 in the range of 5.5 per cent to 6.5 per cent, lower than the government's targeted 6.5-7 per cent. Inflation projections for the fiscal range from 5 per cent to 6 per cent is higher than the 5-5.5 per cent projection made by the government.

At the lower end of the range is Crisil's projection of 5.6 per cent GDP growth for the current fiscal. It expects a 2.5 per cent dip in agriculture in 2004-05 to impact the industrial sector through a fall in rural purchasing power, pulling down the GDP growth from the earlier estimate of 6.2 per cent. Industrial growth will mildly decelerate to 6.8 per cent, while services will grow at 8.4 per cent during the fiscal, says a Crisil report on the impact of the monsoons on growth.

Inflation levels would peak at 6.5 to 7 per cent in the next few weeks and then fall on account of the high base of inflation, which had started rising from the week-ending August 23, 2003, said Subir Gokarn, Chief Economist, Crisil. The year as a whole would see a wholesale price index (WPI)-based inflation level of about 6 per cent, he added.

"The recent oil price hike announced by oil companies is not fully reflective of the international prices. However, the price rise in oil will push up inflation by about 0.5 per cent, said Arvind Virmani, Director, ICRIER. Because of the delay in raising prices before the elections, the impact would be felt during June to August 2004. He forecast that inflation would rise to about 7.5 per cent till August, then plateau and decline subsequently. "It should be down to about 6.5 per cent by March 2005," he said. His forecast for GDP growth is at the lower end of the 6-6.5 per cent range.

ICRA has projected a GDP growth of around 6.6 per cent in 2004-05, based on an 8 per cent growth in the non-agricultural sector, the same level as in the previous year. On agricultural growth, ICRA's quarterly bulletin on the economy states that the peaking output of 2003-04 had registered annualised growth of 1.7 per cent over that in the previous peak crop year of 2001-02. Given the government's focus on improving credit flow to agriculture, agricultural growth could rise to around 2 per cent.

Higher energy prices and the lack of likelihood of a fall in steel prices will keep wholesale price index based inflation close to 6 per cent till the end of the fiscal. Thereafter, the high base effect will subdue inflation, so that the fiscal 2004-05 is likely to close with an inflation level of 5 per cent, the bulletin adds.

NCAER has projected GDP growth of 6.54-6.74 per cent while inflation is projected to range between 5.2 and 5.4 per cent. The council has revised its initial forecast of 6.7-7.1 per cent GDP growth on account of the uncertainty in the investment climate on account of the new government at the Centre and on account of the deficient monsoon.

The deficient monsoon will hit rural incomes, limiting demand for agricultural inputs and reducing supply for agro-based industry.