Professional forecasters raised their growth estimate in the year to March 2011 to 8.4 per cent from the 8.2 per cent they had forecast in April as the economy picks up further from the recovery in the last few months of 2009-2010, the Reserve Bank of India (RBI) said in its macroeconomic and monetary report ahead of the first quarter monetary policy review.
The business environment was expected to improve further in July-September 2010 and a slew of business expectation surveys indicates continuation of the growth momentum in 2010-11, RBI said.
Leading indicators point to the prospect of robust growth in the coming quarters and fast closing of the output gap. The service sector would see improvement in growth to 9.1 per cent from the nine per cent forecast in March, it said. RBI retained its forecast for industry at nine per cent. Agriculture may grow at higher rate of 4.1 per cent compared with four per cent envisaged earlier.
| SMART PICK-UP MEDIAN FORECAST BY PROFESSIONAL FORECASTERS | |||
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Annual forecasts
Data on agriculture, industry, services, GDP and corporate GDP are growth rates in %. The previous estimates were based on the survey for quarter ended June 2009, while the latest is based on a survey for the quarter ended September 2009
Source: RBI
The growth outlook for current financial year remained positive due to the prospect of better kharif output than last year, stronger growth in corporate sales with higher profitability, improvement in business environment and indications of a pick-up in private consumption and investment demand, RBI said.
The sharp rise in tourist arrivals, commercial vehicle production and railway freight traffic also pointed to a buoyant services sector, it said.
A potentially lower fiscal deficit due to higher-than-expected fees from auction of licences for 3G and broadband wireless spectrum could create more space for private sector investment.
While a strong recovery was underway, growth would face some challenges, RBI cautioned.
The uncertain external environment may put a drag on the economy in near term. Sustaining export growth depends on external demand conditions, given the asymmetry in growth outlook for advanced economies and emerging market economies, RBI said, adding that the real appreciation of the exchange rate could also weaken the external price competitiveness of Indian exports.
Then, the investment demand needs to be sustained to be lifted back to the pre-global crisis trajectory. While private consumption is reviving, it should sustain, given the gradual phasing out of the fiscal stimulus and the monetary exit.
Also, inflationary pressures, besides affecting the cost structure through demands for higher wages and increase in input costs, could also depress demand, it said.
