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Economy to slow down to 8.6 p.c.: S&P

MUMBAI: Global rating agency Standard and Poor’s (S&P) on Tuesday forecast a slowdown in Indian economy to 8.6 per cent this fiscal due to high interest rates and appreciating rupee but expected no change in key rates and the cash reserve ratio in the Reserve Bank of India’s credit policy on October 30.

But the strong domestic demand would ensure that India maintains high growth. The moderation from last year’s 9.4 per cent to 8.6 per cent this year therefore reflected a soft landing, S&P said in its mid-year review.

Warning that interest rates in India were clearly peaking, with yields on gilts in a narrow range it expected the benchmark 10-year government securities to remain in the rage of 7.8-8 per cent until March 2008. “The RBI (therefore) is not expected to change the repo and reverse repo rates and the Cash Reserve Ratio (CRR) in its next quarterly announcement,” it said. The agency said that the fiscal situation was very much under control in India with high direct tax collections and the budget target of 3.3 per cent fiscal deficit is expected to be easily met.

Turning to the price situation, it expected the inflation rate to average around 5 per cent by March 2008 due to incomplete pass through of global crude oil prices.

Due to cumulative effect of high interest rates and rising currency, the industrial sector would experience a somewhat slower growth of 9.2 per cent, it said. The agricultural sector, led by a good southwest monsoon, would be the key contributor for growth, expected to grow at 3.4 per cent offsetting a food crisis, S&P Chief Economist Asia Pacific Subir Gokarn said. The inflation outlook for the year remained to be benign and was expected to end the year with an average of 5 per cent, Mr. Gokarn said. — PTI

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