EAC sees India's FY11 GDP growth at 8.5%

India's gross domestic product (GDP) is expected to grow by 8.5% in FY11 (April to March 2010-11), said Dr. C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council (EAC). He went on to add that India's Agriculture growth in FY11 is projected to be 4.5%, while Industry is estimated to expand by 9.7% and Services by 8.9%. The GDP growth in FY12 will rise slightly to 9%, Rangarajan said today. Agriculture growth in FY12 is estimated to be 4%, while Industry is forecast to grow by 10.3% and Services by 9.8%, he said.



Economic recovery will be slow and modest but there is no threat of a double dip recession, Dr. Rangarajan said. To sustain a growth rate of 9%, focus is required on containing inflation, improving agriculture productivity and closing the large physical infrastructure deficit, especially in the power sector, he said.

The EAC sees pick up in investment rate and savings rate. Investment rate is expected to be 37% in FY11 and 38.4% in FY12. Domestic savings rate is expected to be over 34% in FY11 and close to 36% in FY12. The current account deficit for the current fiscal year is seen at 2.7% of GDP while the same for FY12 is projected at 2.9% of GDP in FY12. Net FDI for FY11 is estimated at US$30bn.

The budget deficit in the current financial year may be lower than 5.5% of GDP, Dr. Rangarajan said. Fiscal deficit may be lower than the budgeted consolidated level of 8.4% of GDP for FY11, he said. Revenue deficit as a ratio of GDP is expected to decline from 6.3% in FY10 to 4.6% in FY11. However, Dr. Rangarajan added that the budgeted fiscal deficit and revenue deficit are still beyond comfort levels.

Operationalisation of Goods and Services Tax (GST) should be a priority, Dr. Rangarajan said, adding that he sees buoyancy in direct and indirect tax collections. Auctions of 3G and BWA spectrums and decontrol of the petroleum products prices to provide additional cushion, he said.

Merchandise trade deficit is projected to be US$137.8bn or 9% of GDP in FY11 and US$160bn or 9.3% of GDP in FY12. Against the level of US$53.6bn in FY10, the capital inflows are projected to be US$73bn for FY11 and US$91bn for FY12. Accretion to reserves was US$13.4bn in FY10. It is projected to be US$30.9bn in FY11 and US$39.8bn in FY12.