Religare projects 7.8% economic growth in 2010-11

Research firm Religare today said the economy is expected to expand by 7.8 per cent during the current fiscal, lower than the government projection of 8.5 per cent, mainly on account of moderation in industrial growth.

"Our FY'11 (2010-11) growth estimate is 7.8 per cent, versus the consensus of 8.2-8.4 per cent, on account of the higher base of FY'10, as well as a faster slowdown in industrial activity year-on-year (Y-o-Y) number in the second half of FY'11," Religare said in a statement.

It said the forecast of the RBI and government stands at around 8.5 per cent, but, "We believe that industrial activity has peaked in December, 2009, and is likely to slow down going forward, due to cost pressures and capacity constraints, as well as the base effect."

Religare also said that private final consumption has not improved significantly enough to support growth.

On the external risk factors, the research firm said there was a strong likelihood of the Greek financial crisis spreading around Europe, raising the probability of a double-dip in global economic growth.

It raised the probability of such a dip to 30 per cent, from 15 per cent in January.

As for FY'10, Religare said growth will be higher, at 7.5 per cent, than the estimated figure of 7.2 per cent.

It said the fourth quarter (Q4) GDP number, slated to be announced on Monday (May 31), is expected to "surprise us positively",  with Y-o-Y growth likely to be 9.3 per cent versus the broad consensus of 8.8 per cent.

"After factoring in the Q4 numbers, we believe that the GDP for FY'10 would move up to 7.4 per cent Y-o-Y. In fact, it may even inch closer to the 7.5 per cent mark, helped by the likely marginal upward revision of the previous quarters," Religare said.

It said agriculture and allied sectors are estimated to have grown at 3 per cent in Q4, FY'10, versus 3.3 per cent in Q4, FY'09, as indicated by the arrival of a good rabi crop in the market.

Religare said IIP has posted a healthy 15 per cent growth in the fourth quarter and added, "We see industry – the wild card for fiscal ’10 – including construction, to have grown at 13.5 per cent against a meagre 2.1 per cent in the same year-ago quarter."

The growth in the services sector is estimated to have improved to 9 per cent in Q4, FY'10, from 8.3 per cent last year in the same quarter.