PM Advisor sees 7.1% GDP, lower interest rates

Amid fears of slowdown in the Indian economy, a top economist today said the country's GDP is likely to grow by 7.1 per cent in the next fiscal, the same pace that has been forecast for the year 2008-09, and India is likely to see a lower interest rate regime.

"Indian economy is likely to grow by around 7.1 per cent ... In 2009-10," Suresh Tendulkar, who is Chairman to the Prime Minister's Economic Advisory Council, told a seminar here.

Though likely to be weak in the first half of the next financial year, the GDP growth will bounce back to healthy levels in the second half, on the back of improving fiscal and monetary conditions in the economy.

"The growth may be weaker in the first half, but is likely to pick up in the second half," Tendulkar said.

After clocking over nine per cent growth in the last three years, the government had lowered the growth projections for the current fiscal at 7.1 per cent in the face of global financial crisis.

With inflation being at very low level, interest rates are expected to ease in the coming months on the back of fiscal and monetary measures taken in the recent months, he said.

"I clearly see a lower interest rate regime (in the period ahead)," he added.

Though the global financial turmoil may deteriorate the asset quality in the banking system, Indian banks are better placed to face the crisis than their counterparts abroad, Tendulkar said.

Noting that the credit crunch has impacted the availability of funds to corporates and primarily SMEs, he said, the revival in loan markets are likely to be faster than that of equity markets.

"Loan markets would revive earlier than equity markets.... Accessing external funding sources is difficult in the current circumstances but it is not closed," he said.

Falling inflation, amongst other factors in the economy, has given headroom to the central bank to cut its policy rates, he added.

"I am of the view that there is headroom for reduction. But how and when RBI would do that I cannot say," Tendulkar said.

Highlighting that regaining consumer confidence is a key-factor for the revival of economies worldwide, he said "the crisis of confidence in the advanced economies has been quite serious".

The global financial meltdown has affected export-related sectors in the domestic market very seriously and the crisis in advanced economies has turned out more serious than expected, he said.

The widening fiscal deficit remains a concern to the economy, Tendulkar said, adding he expects the CPI-based inflation to come down in the period ahead.

Also, in the next financial year, the subsidies on both oil and fertilisers are likely to be lowered, he said.