Kaushik Basu pegs Q4 growth at 8.5%

Revival in manufacturing, export-oriented services sectors, especially IT, and agriculture is expected to help the economy clock a growth of 8.5 per cent in Q4 of last fiscal (FY10), chief economic advisor Kaushik Basu said here today.

"In the third-quarter of FY10 the economy did not do well, but in Q4, there was a bounce-back and the country seems on course to clock an 8.5 per cent GDP growth in the quarter," Basu told reporters on the sidelines of an event organised by the Bombay Chamber of Commerce and Industry here.

Inflation would be on the higher side, Basu said, but noted that "core inflation, excluding food and fuel prices, is only around 5.5 per cent." The wholesale price index-based inflation data for March will be released this week.

To achieve a 7.2 per cent growth for FY10 as estimated by the Central Statistical Organisation, the economy must grow over 8 per cent in the fourth quarter, he said.

For the current fiscal, overall GDP growth is likely to be around 8.5 per cent on the back of improving economic prospects, and could go up to 10 per cent in the year after, Basu said. "In FY11, our expectation is that growth will cross 8.5 per cent and the year after that we are expecting a sustainable growth at 10 per cent level," Basu said.

Observing that pick-up in industrial growth is a healthy sign for the economy, Basu noted that overall inflation for the full fiscal is unlikely to cross 4 per cent in the ongoing fiscal.

Though he admitted that inflation has slowly spread to non-food items from food items, he said headline inflation would decline from now and would be quite low from May-end. "Inflation has picked up a little bit on non-food sectors, which was not the case earlier. We expect to see it going downward by the end of April," Basu said.

Food inflation, after touching a record high of 17.81 per cent in the last week of February, began to slide in March. But in the last week if the March it again soared to 17.7 per cent.

The headline inflation zoomed to 9.89 per cent in February from 8.56 per cent in January. It has slowly spread to non-food items and many say the RBI recently raised its key short-term rates by 0.25 per cent points to prevent this spill-over.