Agriculture output will grow by 3 per cent in 2005-06, compared with 1 per cent last year, according to the Confederation of Indian Industry's latest report.
Factors likely to contribute to higher growth are normal southwest monsoon, an improvement in distribution of quality seeds, higher than targeted growth in commercial bank credit to agriculture and a favourable trend reversal in the gross capital formation in agriculture.
According to the 'State of the Economy' report, the year 2004-05 witnessed strong industrial growth, with the index of industrial production rising by eight per cent in 2004-05, compared with 7 per cent in 2003-04.
This was based on robust capacity expansion, as evident by an increase of 12.6 per cent in the index of industrial production for capital goods, in conjunction with a near 24 per cent rise in imports of machinery and equipment.
A CII release said construction activity had grown by 5.7 per cent in 2004-05, and was likely to retain this momentum with further liberalization of foreign direct investment in real estate.
Based on strong growth sentiments, reported by members surveyed by the CII and a majority of sector associations reporting positive outlook, CII has forecast industrial growth at 8.1 per cent for 2005-06.
The report, however, cautioned against some downside risks for industrial growth next year.
"A further slow down in infrastructure, whose growth fell to 4.4 per cent in 2004-05 from 6.2 per cent in 2003-04, will impose a restraint on industrial performance. Secondly, the RBI projection for growth of non-food credit is 19 per cent for the year 2005-06, which is lower than the 26.5 per cent growth in 2004-05, and may result in a lower investment demand by the private sector," the report stated.
CII's report, however, observed that the services sector had maintained its buoyancy in 2004-05, for the third year in a row. Tele-density had increased from 7.17 at the end of 2003-04 to 9.08 at the end of 2004-05 with mobile subscriptions growing by 55 per cent.
Information technology services and the software sector are estimated to grow by 28.9 per cent for the year 2004-05, with exports expected to record a growth of 32.3 per cent. The report predicts a strong services sector performance with a forecast of 8.3 per cent growth in 2005-06.
Based on the above forecast for sector growth, CII has also forecast an overall GDP growth rate of 7.2 per cent for 2005-06.
The report adds that while the economy has the support of growing momentum in the industrial and services sectors, a positive outlook for agriculture, and broad-based and strong exports growth, it also faces certain challenges.
These arise mainly from continuing firmness in international oil prices, rising US interest rates, management of burgeoning forex reserves and maintaining the much-needed fiscal discipline.
On the external front, the report states that in 2004-05, exports grew by a remarkable 24 per cent, with imports growing even more strongly by 36 per cent.
According to the report, exports to China and Hong Kong are increasing at a consistently high rate. This has resulted in China and Hong Kong together accounting for 9.7 per cent of India total exports, displacing UAE (8.7 per cent), and second only to the US, which has a share of 17.5 per cent in India's exports.
However, the heavy concentration of primary commodities, specially iron ore, points to a degree of vulnerability in India's exports to China.
The corporate sector, according to the CII report, had clocked a topline growth of about 21 per cent for the quarter January-March 2005. This is four per cent higher compared with the same period last year. Corporate profitability also remained strong, with operating profits growing by almost 30 per cent and post-tax profits by an even stronger 53 per cent.
The CII report, however, states that the services sector has witnessed some decline in the growth of net sales and profits in the fourth quarter of 2004-05.
However, services sector firms are likely to show a strong topline growth, as net sales have increased at almost 32 per cent from April to December 2004, compared with 19.2 per cent for the same period in 2003.
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