"Growth in the financial year 2005 is expected to be around 6.5 per cent and expected to increase to around 7.4 per cent next fiscal. India perhaps would be only country in the world, which would grow faster, while growth elsewhere slows down," National Council for Applied Economic Research said in its report 'Macrotrack'.
Most importantly, the contribution of manufacturing sector in the overall growth is on the rise and the sector is expected to grow by 8 per cent next fiscal, it said.
"Domestic investment has continued to rise, business confidence is high, FII inflows are strong, the Sensex has touched an all time high and FDI too is increasing," it said.
Although export growth has been strong, NCAER warned that it could slow down of the rupee continues to appreciate and interest rates rise faster than expected.
NCAER praised the new government for sending a "strong reformist signal" within six months of its coming to power, despite the pressure from Left and non-Left allies of UPA.
However, NCAER warned UPA of a possible slowdown, saying "government runs the risk of squandering this goodwill if it does not quickly institute far reaching reforms."
It accused the Left and other allies of UPA for maintaining "dirigiste mindset of 1970s" and for their tendency that appears anti-market and anti-private sector.
"There has been a lot of talk but very little action with clear impact on the ground. This is partly because of pressure from Left and non-Left allies," it said.
NCAER also expressed concern over the resurfacing of the tendency towards "price control" especially in areas of petroleum, steel and pharma. "The reforms signal are therefore mixed, even from the finance ministry on tax reforms," it said.
Driven by revenue considerations, NCAER said the ministry is not focusing on the single most important cause behind poor tax collection -- corruption amongst tax officials. "The sum of all this is that reform will be slow and implementation halting," it warned.
While expressing satisfactory on the performance of the government in the last six months, it said the biggest worry when it took over was inflation, which had begun to inch up towards the "danger zone" in the face of faltering monsoon.
"But thanks to subsequent revival of monsoon followed by dampening of growth in crude oil pries, inflation appears to have stabilised," it said.
The other major concern was interest rates, NCAER said, adding RBI rate came under some pressure from the government and appears to have adopted the "path of gradualism".