It has also upgraded agricultural growth to 5 per cent from 3 per cent in the current fiscal on account of bumper agriculture output in April-May this year.

However, this is still way below the official target set in the Ninth Plan, which projected a GDP growth rate of 7 per cent for the year.

The quarterly economy update of HSBC Securities, the broking arm of HSBC group in India, said the fiscal situation remains fragile with fiscal deficit to be higher at 7 per cent of GDP (old GDP series) in 1999-2000 compared to the budgeted estimate of 6.5 per cent of GDP.

It said the current account deficit is unlikely to widen substantially despite an unexpected slowdown in capital inflows. Large forex reserves of around $29 billion and exchange controls in theforex markets preclude any precipitous fall in the rupee in the immediate future, it said.

HSBC has projected the rupee to depreciate to 44.5 against the dollar in the first half of current fiscal and to 47 by end-March, 2000.

HSBC said that the GDP growth in the current year has been upgraded due to excellent agriculture output along with higher rural incomes to benefit sectors catering to rural demand. "Sectors like fast moving consumer goods, tractors, motorcycles, agrochemicals, consumer durables and cement will benefit on the back of significant higher rural incomes," HSBC said. Apart from it, higher salaries and arrears to government employees (particularly at the state government levels) along with population growth of about 1.8 per cent would show higher growth in consumption-related sectors.

For the industrial sector, it said the market mechanism has broken down in the case of infrastructure industries which is evident from the excess capacity in steel, cement and engineering. The quarterlyupdate said the key to the upsurge in industrial growth lies in the rational pricing of infrastructure products, which is essential for investment growth. It also said liquidity is expected to remain comfortable in the next three-six months on account of slack economic season and the Reserve Bank of India is expected to reduce cash reserve ratio (CRR) to maintain easy liquidity.