GDP growth may moderate to 8.7 pc

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New Delhi, February 7:: Country's economic growth is likely to moderate to 8.7 per cent in the current fiscal due to slow expansion in industrial output, which is hit by high interest rates, and sluggish agriculture.

The Gross Domestic Product (GDP) had grown at 9.6 per cent in 2006-07, which was the highest in 18 years.

"GDP at factor cost at constant (1999-2000) prices in the year 2007-08 is likely to attain a level of Rs 31,14,452 crore as against Rs 28,64,310 crore in 2006-07," according to the advance estimates of national income released by the government on Thursday.

The GDP grew at 9.1 per cent during the first half of this fiscal. It grew at 9.3 per cent in the first quarter and 8.9 per cent in the next three-month period. The advance estimates showed a further moderation during the rest of the year.

The estimated growth rate is slightly higher than the conservative RBI projection of 8.5 per cent, but less than 9.1 per cent, projected by economic think tank NCAER.

Finance Minister P Chidambaram had earlier exuded confidence that the economy will grow close to 9 per cent during 2007-08.

High interest rates have pushed up cost of producing industrial goods and reduced demand for consumer goods, affecting manufacturing growth.

The manufacturing sector is likely to grow at 9.4 per cent during the fiscal as against 12 per cent last year.

The advance estimates revealed that agri and allied activities will likely expand at 2.6 per cent as against 3.8 per cent in the previous year.

Analysts expressed concern over the slowdown in farm sector despite good monsoons, saying it will affect prices of agricultural produce. "Agriculture is the only major worry.

Slowdown in agriculture growth does not augur well for prices of farm products," CRISIL Principal Economist D K Joshi said.

In the industrial sector, mining and quarrying sector is estimated to grow at 3.4 per cent as compared to 5.7 per cent in the previous financial year.

Construction activities are projected to moderate to 9.6 per cent as against 12 per cent. Electricity, gas and water supply would be the only saving grace in the industrial activities as they are shown to be growing at 7.8 per cent against six per cent.

Joshi said it is a good opportunity for the Finance Minister to cut indirect taxes in the coming Budget on industrial goods as it would spur their production as well as reduce their prices to boost demand.