"GDP growth will be 6.5-7.5 per cent in the next two years from 6.9 per cent in 2004-05 due to an expansion in aggregate supply," CSFB said in its emerging markets economic research report.
Inflation is likely to hover around 5-6 per cent by the end of 2005-06, it said, adding the drop in import duties are likely to boost industrial production to 8-10 per cent in 2005-06 from 7.8 per cent in 2004-05.
On the fiscal deficit, it said the key issue regarding fiscal slippage in 2005-06 will depend on inflation, interest rates and PSU banks' willingness to buy government securities and liquidity.
"We believe the risks of significant fiscal slippage in 2005-06 are limited," CSFB said. The government has estimated fiscal deficit at 4.5 per cent of GDP as against the budget target of 4.4 per cent for 2004-05 while setting the 2005-06 target at 4.3 per cent.
Net borrowings for the next fiscal are expected to be about Rs 1,40,000 crore (Rs 1400 billion) versus consensus expectations of Rs 90,500 crore (Rs 905 billion) but CSFB expects it to be Rs 91,000-92,000 crore (Rs 910-920 billion).
