Economy to grow 8.7% in 2010-11, finds survey

Inflation a ‘major worry’ and can distort picture; wants more infra credit.

India’s gross domestic product (GDP) is expected to grow 8.7 per cent in the year, according to the Reserve Bank of India’s professional forecasters’ survey conducted in December. The previous survey showed a growth rate of 8.5 per cent.

Improvement in exports, buoyant demand, a rise in volume of sales and new orders were factors that provided a boost to overall expectations. But persistently high rate of inflation can dent growth.

“The outlook for growth remains buoyant. The inflation persistence, led by stubbornly high food inflation, in double digits for close to two years, however, remains a major concern,” said RBI in its macroeconomic outlook, released a day before the third quarter review of the monetary and credit policy.

On the brighter side, the survey results suggest manufacturers expect selling prices and profit margins to increase despite expectations of rising input costs, which reflect their pricing power. The survey says better agricultural production is expected on the back of satisfactory monsoon and reservoir levels. The survey revised growth estimate for the agricultural sector from 4.6 per cent to five per cent.

It expects growth in the service sector, higher tax revenues, stronger growth in corporate performance, higher employment, increase in consumption demand and strong credit growth. The survey revised its growth projection for the service sector to 9.6 per cent from 9.2 per cent earlier.

The survey says possible fiscal consolidation will reduce crowding-out risks. On liquidity, it expects conditions to improve as the government spends more from its surplus balances, which in turn may ease the concerns of liquidity stress impacting flow of credit.

It expressed concern over growth in core infrastructure lagging GDP growth as well as industrial growth, and expects stronger credit flow towards the sector to support growth.

On industrial growth, the survey said volatility adds to uncertainty. External factors such as sovereign debt risks spreading from the euro zone affecting external demand and strong capital inflows beyond the absorptive capacity putting pressure on the exchange rate are future downsides.