In its latest report "Fundamental Asia", Arjuna Mahendran, economist for South Asia and Indonesia, has projected India's gross domestic product to grow 5.6 per cent in 1999/2000 (April-March) and inflation growth at four percent.

Government estimates for last year's GDP are 6.0 per cent. "With the liquidity overhang, we reiterate our expectation of a further cut in interest rates and banks' cash reserve ratio," SG Asia Securities said.

"The announcement of the cut will come after that of the election results so as to maintain the Reserve Bank's impartiality in the election process," it said. Indian banks maintain a cash reserve ratio of 10 per cent of net deposits and the bank rate, at which the Reserve Bank of India (RBI) refinances banks, is eight per cent.

SG Asia Securities estimated the fiscal deficit target for 1999/2000 will exceed the targeted four per centof GDP."Government borrowings in the first half of the fiscal year are already 80 per cent of the full-year target," SG Securities said.

"However, the Reserve Bank has been aggressively monetising the deficit in recent weeks and pumping liquidity into the system to prevent treasury-bill rates rising," it said. SG Asia Securities said the country's uneven spread of rainfall could hurt crop production in several areas. "This, in turn, could temper the revival in rural consumer spending that has rejuvenated cyclical sectors such as cement, autos and steel production," it said.