The Prime Minister's Economic Advisory Council on Friday said the Indian economy will grow by 8.5 per cent in 2010-11 and by 9 per cent next year, but high prices and poor infrastructure remained key worries in the medium term.
The farm sector is likely to grow by 4.5 per cent, industry by 9.3 per cent and services by 8.5 per cent, boosting growth.
The council, headed by former Reserve Bank of India (RBI) governor C. Rangarajan, said inflation would come down to around 6.5 per cent by the end of 2010-11.
The growth projections are lower than that of International Monetary Fund’s (IMF’s) 9.4 per cent for 2010.
The council had earlier pegged India's 2010-11 growth at 8.2 per cent.
The economy grew 7.4 per cent in 2009-10, aided by a sharp rebound in industry and services, and a better-than-expected farm output.
Growth had slowed to 6.7 per cent in 2008-09 after growing at 9 per cent for four straight years before a crisis in the US roiled the global economy.
Wholesale prices-based inflation is hovering around 10.55 per cent, but is expected to go up further as the secondary effects of oil price increase kicks in across broader economic activities.
The RBI, which will present the quarterly monetary policy review on July 27, should take either strong monetary action or "baby steps" to arrest it, Rangarajan said.
The council expects inflation to fall to 7-8 per cent by December before cooling to about 6.5 per cent by the end of March 2011 as higher farm output buoyed by normal monsoon rains help enhance food supplies and pull down prices.