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February 07, 2010

India Predicting Strong Economic Growth

India's economy is expected to grow by 7.2 per cent this year. The latest forecast indicates that economic recovery is on track in Asia's third largest economy.        

Government estimates released Monday indicate strong growth in the industrial and services sector is helping the economy rebound after slowing in the wake of the global financial crisis.

The forecast of 7.2 percent growth for the fiscal year that ends in March comes amid growing optimism in India.

Consumers have returned to shopping malls, and sales of cars and mobile phones have picked up rapidly in recent months. Many companies are posting good profits and hiring new staff. Economists say India's recovery has been largely driven by strong domestic consumption among its more than one billion people.

Finance Secretary Ashok Chawla says that even the agriculture sector, which has shrunk in the wake of a widespread drought last year, could revive because of good winter harvests by farmers.

"The fourth quarter we are expecting it to be much better, more robust so overall agriculture is not going to see the kind of dip which was initially out," Chawla said.

Although farming contributes relatively little to the country's gross domestic product, it remains a key concern because two-thirds of the country's population depend on agriculture for a living.  

However, economists say uncertainties lie ahead. The shrinking agricultural output last year has stoked high inflation and led to a huge jump in food prices. This in turn has brought pressure on the government to scale back the stimulus measures that infused billions of dollars into the economy and helped its recovery.

A top official at the Planning Commission, Montek Singh Ahluwalia, says the  government will have to contemplate tightening monetary policy as the economy strengthens.

"It has been my consistent view that if it looks that the economy is back on seven plus per cent growth path, which it clearly now is, yes, we should say the stimulus has succeeded and we should begin to phase it down," Ahluwalia said.

Stock markets and the private sector have been wary of such a move by the government, hoping it will not set back the tentative recovery.

However, the Indian government's estimates of a return to a high growth path are backed by international institutions such as the World Bank. In a report last month, the World Bank said that economic revival in India remains resilient despite a slow global economic recovery.