Govt lowers GDP growth forecast to 7.5 per cent

Citing global and domestic reasons, the government on Friday lowered the GDP forecast for the current fiscal to 7.5 per cent from 9 per cent, but exuded confidence of a revival in the next year.

"The analysis of several data series and simple macro-econometric modeling lead us to forecast GDP growth of 7.5 per cent (plus/minus 0.25 per cent) during 2011-12," the government said in the Mid-Year Analysis 2011-12 tabled in Parliament.

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Compounding with domestic factors like decline in industrial production, the global situation has led to a clear slowdown in the growth rate in the first half of 2011-12 to 7.3 per cent from 8.6 per cent year-on-year, it said.

"We expect some revival next year but the outlook remains mixed. If Europe slides into proper recession, with all the attendant financial contagion that will no doubt affect other nations, the entire world economy will slowdown and we could also be impacted," it said.

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The analysis, however maintains that with India's strong fundamentals, and if Europe and the US remain stable, it should be possible for the country to achieve 9 per cent growth in the long run.

On high rate of price rise, the government expects that with demand side pressure moderating following withdrawal of fiscal stimulus and tightening of credit, overall WPI inflation is likely to decline December onwards.

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"...the current fiscal may end with headline inflation of around 7 per cent," it said.

It further said "maintaining the growth momentum in the economy with price stability is one of the biggest policy challenges that India is facing in recent times," the analysis tabled by Finance Minister Pranab Mukherjee in Lok Sabha said.

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In the mid-year review, the government, however, said it expects improvement on price front. But it will depend on strong measures to boost supply side of food and agriculture and remove bottlenecks.

Expressing concern over slow pace of moderation of headline inflation, the government said it has started easing and the decline is expected to continue.

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The average wholesale price inflation during April-October 2011 was 9.6 per cent as compared to 9.9 per cent in the same period last year.

It further said the Centre's fiscal policy for 2011-12 remains on the consolidation track, even though there may be a small transgression this year.

"There can be no denial that meeting the target will not be easy this year. The government is, however, determined to keep overshooting fiscal deficit target of 4.6 per cent to as minimal as possible," the review said.