The Reserve Bank of India (RBI) on Tuesday retained the GDP growth forecast at 8.5 per cent during 2007-08, "assuming no further escalation in international crude prices and barring domestic or external shocks."
"Real GDP growth originating in agriculture and allied activities has risen above trend in the first quarter of 2007-08, and is poised to maintain this performance over the rest of the year on the back of a favourable south-west monsoon and improvement in sown acreage. Recent developments indicate some slackening of momentum in the industrial and services sectors. Moreover, global uncertainties may have some moderating influence on the performance of manufacturing as well as services. Overall, these sectors are expected to sustain the momentum of growth," the central bank said in its mid-term review of monetary policy.
The central bank also said inflation would be contained close to 5 per cent during 2007-08 "while resolving to condition expectations in the range of 4-4.5 per cent with a medium-term objective of inflation at around 3 per cent."
"The gains achieved in reining in inflation in the first quarter of 2007-08 have been extended into the second quarter, and currently headline inflation appears to be emerging out of a prolonged trough. At this juncture, however, rising and volatile international crude prices and the heightened levels of food prices pose risks to the inflation outlook.