Indian economy will grow 6.7% in fiscal year 2009-10, pushed by a healthy increase in consumption even as private investment will moderate, information services provider Dun & Bradstreet (D&B) has projected.
In its Economy Outlook 2009-10, D&B said the economy will pick up in the medium to long-term when the policy responses of the government and Reserve Bank of India will come into play and the external situation will stabilise.
“D&B believes that the strong fundamentals of the Indian economy are a key to early reversal. D&B expects GDP growth to bottom out during H1 FY’10, see a reversal by H2 FY’10 and average at 6.7% for FY’10,” it said in the report, released on Thursday.
The research firm expects the economy to grow at 6.8% in 2008-09, lower than the projection of 7.1% by Central Statistical Organisation and Prime Minister Economic Advisory Council. Giving reasons for the lower forecast, it said investment demand has come down in line with consumption as banks have turned risk-averse and cautious in lending.
The investment growth is likely to slow down to 35.5% this fiscal from 39.1% a year ago, D&B said, adding that in 2009-10 the growth in investment will level at 35% as the problems in lending will continue.
D&B said the aggregate consumption demand as measured by Private Final Consumption Expenditure (PFCE) will stabilise at 6.5% during FY’09 compared to 8.1% in the last fiscal. However, there will be a slight improvement in consumption to 6.7% in FY’10 as fiscal measures and lower interest rates begin to boost confidence and stimulate demand in the latter half of the year.
In its fight against inflation, RBI had adopted a tight monetary stance in 2008, slowing down the economic growth that averaged 7.4% against 9.3% in the previous year. The condition worsened in September when banks found borrowing difficult and hence reduced lending. To reverse the situation, the government and the central bank eased the credit condition through several measures taken since September 2008.
RBI has reduced mandatory cash reserve ratio to 5% from 9%, repo rate—at which it lends to banks—to 5% from 9% and reverse repo rate—at which it borrows from banks to 3.5% from 6%. In total, it injected liquidity of Rs 3,88,000 crore into the system. The government also raised expenditure on infrastructure and created a favourable lending environment for individuals, small industries and exporters.
Despite the measures, growth in bank lending is expected to moderate to 21.5% this financial year and 20% the next as banks will continue to be risk-averse and demand for loans from industry will be low due to production cuts and deferred investment plans, the report stated. However, benchmark prime lending rates will come down to 10.5-11% in FY’10, it added.
The industrial production growth, which has turned negative at -0.2 in October-December 2008, will pick up only in second half of 2009-10 and register an average increase of 5.3% during the year compared to expected rise of 3.5% this fiscal as demand will grow both domestically and internationally, D&B said.
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