NEW DELHI: Citing agriculture still as a major area of concern, the Prime Minister's Economic Advisory Council (EAC) headed by C. Rangarajan on Monday projected an economic growth of 7.9 per cent during the current fiscal, driven mainly by robust performances by sectors such as industry and services.

Upbeat in its assessment, the EAC, in its Economic Outlook report for 2006-07, has noted that the high growth in the economy this fiscal will emanate from a 1.5 per cent growth in agriculture, 9.7 per cent in industry and 9.5 per cent in services.

Interestingly, in the event of the near eight per cent growth forecast holding true, it will be the first time that the country's economy will witness eight per cent growth for a consecutive span of four years, having grown at 8.1 per cent for the last three years.

"As per our assessment, the economy will grow at 7.9 per cent during 2006-07. This will come from agriculture growing at 1.5 per cent, industry at 9.7 per cent and services at 9.5 per cent. Industrial output has expanded at a rate of 10.1 per cent in April-June 2006, while export and import volume growth are indicative of reasonably strong external demand for Indian manufactures and domestic demand for raw materials and intermediates. Reflecting this outlook, we are projecting a higher growth in industry this year (9.7 per cent) than in the previous year (8.7 per cent),'' the report said.

On the debate as to whether the growth over the last three years has been driven largely by consumption demand, including demand for homes, financed by loans from the banking system, the EAC noted that an analysis of the data on bank credit deployment during 2002-06 showed that "growth over the recent period has been more consumption driven than investment driven.''

"The credit market has since become tighter and this will restrain consumption demand to some extent. However, this need not necessarily result in a growth downturn. A consumption boom that lasts for a period has the potential to create an investment boom. In fact, the growth momentum can be accelerated if the Government responds with a strong and credible policy to create a conducive climate for investment,'' the EAC has said.

In this regard, the EAC has called for two specific responses. First, the Government, will have to supply more and better infrastructure. Investment in infrastructure can come by way of direct public investment or through public-private partnership (PPP).

Second, investment capital needs to be made available at reasonable rates of interest. A critical requirement for this is for the Government to reduce its fiscal deficit, particularly revenue deficit.

On the farm front, the EAC report pointed out that agriculture remained a major area of concern, partly because of its continued dependence on rainfall and partly because of stagnation in the yield of crops.

To tide over this problem, the council has advised a vigorous push for new technologies, particularly for rain-fed crops and their active dissemination through extension supported by inputs, credit and rural infrastructure.

As for the manufacturing sector — the mainstay for high growth during the last few years — energy and other infrastructure inadequacies pose the main constraint on acceleration of growth, the EAC said.

Despite rising oil prices owing to which the inflation rate has gone up from 4.1 per cent last year to 5.5 per cent this year, the EAC felt that global growth would be sustained and that there were no significant external constraints hindering expansion of the Indian economy.

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