Economy to grow at 5.7% in FY10, says RBI survey

Manufacturing sector to be hit by slowdown for some more time, it says.

A survey conducted by the Reserve Bank of India (RBI) has estimated that the Indian economy would grow at less than 6 per cent during the current financial year, the slowest expansion since 2002-03.

The median forecast of professional forecasters' survey estimated that the economy would grow by 5.7 per cent during the current financial year and also revised the growth projections for 2008-09.

According to the Central Statistical Organisation's advance estimates, GDP is projected to grow by 7.1 per cent in 2008-09. This would be the slowest growth since 2002-03, when the economy grew by 4 per cent. For three successive years up to 2007-08, GDP rose at a rate of over 9 per cent.

Agriculture, which is projected to grow at 3 per cent during the current financial year, provides a silver lining of sorts with services and industrial growth expected to moderate.

During the current financial year, imports and exports are projected to contract by 4 per cent and 8.4 per cent respectively. This indicates that the manufacturing sector would continue to feel the impact of the global slowdown for some more time.

The only good news is that there are signs of the economy bottoming out. During April-June, the GDP is expected to rise by 5.3 per cent, before improving to 5.6 per cent in the second quarter. The Indian economy is expected to grow at 6.2 per cent in the third and 6.5 per cent in the fourth quarters. During the third quarter of 2008-09, the Indian economy grew by 5.3 per cent as against 7.7 per cent in the first half.

While RBI expects inflationary pressure to remain low during the current financial year due to low commodity prices globally, it also points out that high food prices have kept consumer price inflation at elevated levels. During January-February, inflation based on consumer price indices has hovered around 9.6-10.8 per cent as against 7.3-8.8 per cent in June 2008.

Pointing to more pain for companies, the forecasters' survey estimated the growth in corporate profit to fall to single-digit rates.
 

MORE PAIN AHEAD Median forecasts of macroeconomic indicators by professional forecasters
	2007-08 Actual	2008-09		2009-10
		Earlier	Now	Earlier	Now
GDP	9.0	6.8	6.6	6.0	5.7
Agriculture	4.9	3.0	1.6	3.0	3.0
Industry	7.4	4.9	4.1	5.0	4.1
Services	10.8	9.0	9.3	7.5	7.5
Gross domestic savings (as % of GDP)	37.7	33.0	35.3	33.3	34.6
Gross domestic capital  formation (as % of GDP)	39.1	34.9	37.5	34.0	35.4
Corporate PAT	26.2	15.0	13.5	12.0	9.0
Data, barring savings and capital formation, pertains to growth rate Earlier estimates based on survey conducted for quarter-ended Dec 2008 Latest estimates based on survey for quarter-ended March 2009 Source: RBI

In addition, the quarter-ahead expectations survey on industrial performance conducted by RBI projected all-round deterioration during April-June 2009. Only 11.2 per cent of the respondents said that the overall business situation would be better and 8.4 per cent said the financial situation would be better.

"In sum, the Indian economy has experienced some loss of growth momentum with major drivers of growth witnessing moderation," RBI said in its pre-monetary policy assessment today.

While savings and investment rates are expected to decline during 2008-09, RBI said the fiscal stimulus packages announced by it and the government would help arrest the moderation and revive consumption and investment with some lag. Besides, it said that the balance of payment position remained sustainable in the context of the present level of foreign exchange reserves and external debt.

Among the positives, the central bank, which is due to announce the annual policy statement for 2009-10 tomorrow, said that foreign exchange reserves continued to remain at comfortable levels, and would ensure stability, despite falling by $59 billion over the last 12 months.