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Stressing that India has been able to weather the global financial crisis, the PMEAC has said the country's economy may grow by 6.75 pc this fiscal despite bad monsoon affecting farm sector output.
The Prime Minister's Economic Advisory Council (PMEAC) in its Economic Outlook for 2009-10 submitted to Prime Minister Manmohan Singh on Wednesday, said India's GDP growth rate could range between 6.25 percent and 6.75 percent. On average, it could grow around 6.5 percent.
Releasing the outlook, PMEAC Chairman C Rangarajan said the ongoing global financial crisis and the impact of drought on the country's farm output, forecast to post a negative growth of 2 percent, are key factors impacting growth.
The agricultural sector accounts for about 18 percent of the GDP.
He, however, said, India was much better poised compared to some of the other countries in the backdrop of the crisis.
"On the whole, we must say the Indian economy has weathered the international financial crisis very well. It has been able to hold on to a rate of growth of economy which is perhaps the second fastest in the world," he told reporters.
India's economic growth slowed down to 6.7 percent during 2008-09, from over 9 percent recorded in the previous three years, on account of global financial meltdown.
The PMEAC further said inflation, which is hovering around one percent, may firm up to 6 percent by the end of the current fiscal.
Despite the expected rise in inflation in the near future, Rangarajan said the current monetary policy may have to continue till March-end next year to support the economy, which has slowed down due to the global financial crisis.
"The monetary policy has been accommodative in the past several months ... the stance will have to change, but will have to wait depending on the growth performance and inflationary pressures on the economy," he said.
Rangarajan, however, said rising inflation, mainly driven by increasing food prices, is a "disturbing element in the Indian economy".
Food grain production has been estimated to be 223 million tonnes this year, a shortfall of 11 million tonnes from last year.
Stressing on the need to bring down the high fiscal deficit, which is projected to be 10.09 percent, including that of states, he said the current level is not sustainable over a long period of time.
"In 2010-11, some effort will be made to bring it (fiscal deficit) down in a measured way and the process of fiscal consolidation will have to start from next year," Rangarajan said.
The Central fiscal deficit was 6.2 percent in FY'09 and is projected to be 6.8 percent of GDP in the current fiscal.
The PMEAC in its outlook has projected industrial growth (including construction) of 8.2 percent in FY'10 against 3.9 percent in the previous fiscal.
It predicted a growth rate of 8.2 percent in the services sector, which grew by 9.7 percent last fiscal.
The panel expects the current account deficit to be 2 percent of GDP in FY'10 against 2.6 percent in FY'09.
While exports are projected to touch USD 188.9 billion, imports are projected at USD 306 billion in the fiscal.
Capital inflows during the fiscal are expected to be USD 57.3 billion and net addition to foreign exchange reserves will be of USD 31.6 billion, it said.
Projected investment rate in 2009-10 is unchanged from last year at 36.5 percent. Savings rate, the PMEAC said, may inch up marginally to 34.5 percent of GDP from 33.9 percent during 2008-09.
The panel suggested that in the short term, managing inflation, specially food prices, should be the priority.
"In the short run the most important thing is to manage the price situation. We need to ensure that the rabi crop is substantial, is good and therefore all measures need to be taken to enhance the the rabi crop," Rangarajan said.
For the medium term, the PMEAC said focus should be on improving farm productivity and actively explore fuel sources like natural gas and nuclear energy.
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