GDP growth 8.5%; inflation target 4-4.5%

Reserve Bank of India (RBI) today maintained its growth projection for gross domestic product (GDP) at 8.5% for FY08 - assuming no further escalation in international crude prices and barring domestic or external shocks.

Y V Reddy, Governor, RBI, while presenting the third quarter review of annual statement on monetary policy said: "Real GDP originating in agriculture and allied activities has recorded above-trend growth in the first half of 2007-08 with kharif foodgrains production placed higher than in the preceding year. More information will be necessary to make a full and
realistic assessment of rabi production, including the extent to which reservoir storage will have a mitigating effect on shortfalls in the winter North-East monsoon.

"On the other hand, industrial activity appears to be experiencing some transient and cyclical effects affecting manufacturing performance. With the momentum of growth in the services sector expected to be sustained, drawing from leading indicators, the projection of overall real GDP growth in 2007-08 is maintained at around 8.5% for policy purposes, assuming no further escalation in international crude prices and barring domestic or external shocks."

The central bank said the aim would be to keep headline inflation in the range of 4-4.5%. "In recognition of India's evolving integration with the global economy and societal preferences in this regard, the resolve, going forward, would be to condition expectations in the range of 4.0-4.5% so that an inflation rate of around 3% becomes a medium-term objective
consistent with India's broader integration into the global
economy," the central bank said.