The central bank has based its "optimistic" growth rate on a turnaround in agricultural production and some recovery in industrial production. The RBI had, in the monetary and credit policy announced in April, said that the Indian economy had the potential to attain a growth rate of 7-8 per cent per year over the medium term.

The central bank has expressed its concern about the current trends in inflation. "The rate of inflation as measured by the wholesale price index on a point to point basis is currently ruling at over 8 per cent which is significantly higher than the rate which as pointed out in the April statement should not exceed 5-6 per cent per annum," RBI governor Bimal Jalan said in his policy statement.

"In view of the global slowdown in economicactivity, this order of growth will place India as one of the very few countries, developed or developing which will show a relatively high positive rate of growth during the current year," Jalan said while presenting the monetary and credit policy for the second half of the current financial year.

Both the Centre for Monitoring Indian Economy (CMIE) and ICICI-Securities have pared their estimates for GDP growth in the region of 4.5 per cent.

The governor noted that the monsoon has been good this year and agriculture is expected to bounce back from a negative growth in 1997-98 to a positive one in 1998-99. He, however, added a work of caution: "at present there is some uncertainty about the extent of likely increase in agricultural production during the year as come parts for the country have been affected by floods and rains. Taking this factor into account a rate of growth of 3 per cent in agricultural production over the depressed levels of 1997-98 seems a reasonable estimate at this point oftime."

Continuing his cautious note, the governor added that as regards industrial growth, although there have been some incipient signs of recovery, it has not yet been clear whether the rate of growth will be substantially higher than last year's growth of 6.5 per cent. The Index for Industrial Production (IIP) has averaged 3.5 per cent in the current fiscal with the manufacturing sector clocking a growth rate of 3.2 per cent.

"The RBI is being overtly optimistic about the GDP rate. It will be difficult to attain these level," an economist in a leading brokerage house said.