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CII projects 6.1-6.5% GDP growth this fiscal

NEW DELHI: Even as the Indian economy witnessed a considerable slowdown in the second half of 2008-09 in the wake of the global meltdown coupled with a cyclical domestic downturn, the Confederation of Indian Industry (CII) expects a recovery in GDP (gross domestic product) growth to 6.1-6.5 per cent in the current fiscal.

According to a report on the ‘State of the Economy’ released here, the apex chamber has factored in a base-case scenario GDP growth of 6.1 per cent in 2009-10 which is to be driven mainly by the decline in interest rates, moderation in the prices of essentials such as food and fuel and reduction in indirect tax rates.

Alongside, this scenario has factored in sectoral growth rates of 2.8-3 per cent in agriculture, 5-5.5 per cent in industry and 7.5-8 per in services. Rural demand has also remained strong in view of the good performance of the farm sector. “The fact that rural demand remains unaffected by global developments is a source of strength for the Indian economy,” CII Director General Chandrajit Banerjee said.

A more decisive recovery, the report said, would be possible through further monetary easing by cutting the repo and the reverse repo rates by at least 50 basis points, implementing large infrastructure projects and reviving confidence by ensuring a business-friendly environment. If these revival measures are implemented, the GDP growth during 2009-10 could be higher at 6.5 per cent. An analysis of the financial performance of 324 companies (173 in manufacturing and 151 in the services sector) for the quarter ended March 2009 revealed that there has been a slowdown in sales growth and contraction in net profits during the period. Net sales grew 8.7 per cent during the fourth quarter last fiscal as compared to a growth of 23.7 per cent in the previous quarter. The moderation in sales growth, the report said, has been accompanied by a similar moderation in raw material costs, reflecting the decline in global commodity prices. As a result, net profits of the sample companies contracted by one per cent during the last quarter of 2008-09, marking a slight improvement when compared to the contraction of 2.4 per cent in the previous quarter.

The chamber also pointed out that at a time when the global economy and global trade are projected to contract, it would be extremely important to maintain countercyclical fiscal and monetary policy measures. As the drivers of economic growth have to come from domestic sources, the Government has to maintain higher spending, especially in creation of public assets, while monetary policy should be supportive. “Any pressure on interest rates to rise at this juncture will crowd out private spending,” Mr. Banerjee said.

The global financial turmoil, the report pointed out, also resulted in a sharp decline in capital inflows. During April-December 2008, while the balance of payments ran a deficit of $20.4 billion, the country’s foreign exchange reserves declined by $57.4 billion during the fiscal. This decline has been somewhat halted since March 2009, reflecting some revival in capital flows. To guard against possible downturns in future, policies need to be in place to ensure that India remains an attractive investment destination and particularly conducive to large FDI (foreign direct investment) inflows, it said.

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