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Real GDP growth likely to grow by 8.8% in FY 12: CMIE

business Updated: May 22, 2011 09:52 IST

Country's real GDP growth is expected to grow by 8.8% in FY 12 after having grown a tad faster, at 9% in FY 11, the Centre for Monitoring Indian Economy (CMIE) has said.

"In FY 12, the Indian economy is projected to grow at a brisk 8.8%. The agricultural and allied sector is projected to grow by 3.3% in FY 12, on top of the 5.4% growth estimated in FY 11," the city-based think-tank said in its monthly review.

Growth and inflation would remain high in FY 12, it observed.

Inflation has remained high long enough for even those who were the proponents of growth against low inflation till recently to start worrying about inflation. The government has effectively backed RBI's 50 basis point interest rate hike on recent policy. This was the seventh hike in interest rates by the Central bank in 11 months.

Inflation climbed down from its peak of 16% year-on-year in January 2010, but it remained in double-digits till July. It has not fallen even much thereafter. Between August 2010 and March 2011, WPI-inflation was between 8.5% and 9.5%.

The government has expressed fears that high inflation and high crude oil prices may hurt growth. They have therefore expressed solidarity with RBI's hike in interest rates to rein in inflation.

According to analysts, inflation is influenced much more by global commodity price trends and by higher employment caused by new capacities than by the levels of interest hikes announced by the RBI.

"We see significant new capacity additions in FY 12. Its corresponding new employment and higher wages is expected to drive capital formation and consumption growth in FY 12, CMIE noted.

The industrial sector, including construction, is projected to grow by 9.4% during FY 12, as compared to 8.5% estimated in FY 11. The growth in industrial production will be driven by a rise consumption and investment demand. Consumption demand will be driven by a rise in wages and fresh employment generation, it said.

Investment demand is expected to remain buoyant, as more and more projects move into the implementation stage, the leading research outfit said.

Projects worth Rs 8 lakh crore are scheduled to be commissioned in FY 12 as compared to Rs 2.7 lakh crore in FY 11. This is expected to push up activities in the construction sector. The sector is projected to grow by 10.5% during the current fiscal, as compared to an estimated 9.8% in FY 11, it stated.

The growth in the services sector and its segments is projected to marginally moderate in FY 12. The sector is projected to expand by 9.9% as compared to an estimated 10.2% in FY 11.

Private final consumption expenditure is projected to grow by a healthy 7.5% and gross fixed capital formation by 14.6% in FY 12 in real terms, CMIE said.