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FICCI sees growth slipping below 7%

business Updated: Jan 27, 2010 20:39 IST
HT Correspondent

The Indian economy will grow 6.9 per cent in 2009-10 despite signs of recovery in the industrial sector, as a drought-hit farm sector will pull down overall growth, said a survey of economists conducted by industry chamber Ficci.

The results of the survey of 12 economists showed that the spectre of drought would mute the cheers in the world’s second fastest growing economy even as many crisis-battered sectors are recovering faster than previously anticipated.

The government’s mid-year economic review has forecast growth of 7.75 per cent.

The Ficci survey said a sudden withdrawal of stimulus measures announced through 2008 and 2009 to counter the economic downturn, would adversely affect growth prospects.

The Indian economy grew 7.9 per cent during the July-September period – its strongest in six quarters – on the back of higher consumer spending and private investment.

Growth of the Indian economy slowed to 6.7 per cent in 2008-09 after growing at close to 9 per cent for four straight years before the meltdown hit home.

“The government may look at withdrawal of stimulus in sectors which are showing good performance. Exports must continue to get support, as the outlook for the global economy is still uncertain,” the survey said.

Industry has led the acceleration in the growth of the broader economy, with factory output growing by 11.3 per cent in November, the highest in two years.

The International Monetary Fund on Tuesday had forecast that the Indian economy would grow by 7.7 per cent in 2010.

A majority of the economists, who participated in the Ficci survey, expect the RBI to announce monetary tightening measures and increase the cash reserve ratio (CRR) by 0.5 percentage points from the present 4.75 per cent.

CRR gives the proportion of deposits commercial banks have to park with the Reserve Bank of India (RBI).

The RBI will meet on Friday for a quarterly review of monetary policy, although economists said increasing interest rates would be ineffective in cooling the drought-related surge in food prices, the survey said.