Indian economy to slow to 8.1% in 2008-09

Written by Reuters | Mumbai, March 28: | Updated: Mar 28 2008, 16:56pm hrs
India's economic growth is expected to slow more than previously expected in 2008/09, undermined by moderating consumer demand, higher inflation and a swelling trade deficit, a Reuters poll shows.

The quarterly poll projects 2008/09 growth at 8.1 percent, down from a forecast of 8.3 percent in a similar poll in December and below the average growth of 8.75 percent in the last four years.

While growth is seen slowing, economists expect inflation to be much stronger than they had forecast three months ago. Growth for the current fiscal year to the end of March is seen slowing to 8.7 percent, in line with government forecasts but below the previous year's heady pace of 9.6 percent, the fastest in 18 years.

"Inflation, global slowdown and continuing moderation in manufacturing sector at least in the first half of 2008/09 will affect growth," Shubhada Rao, chief economist at Yes Bank said.

Rao said robust capital spending and efforts to crank up consumption through budget measures, including cuts in excise duties on goods including small cars and motorcycles, were positive for growth.

Elevated interest rates designed to fight off inflation have crimped domestic demand and eased the pace of manufacturing in the world's fastest-growing major economy after China.

Added to which, financial market turbulence makes it harder for India to achieve high growth rates, Finance Minister Palaniappan Chidambaram said in Singapore this week.

Wholesale price inflation hit a 10-month high of 5.92 percent in early March, way above the 5 percent level that the central bank targets for inflation in 2007/08.

The poll suggests little moderation in inflationary pressures in the next fiscal year as India, like other countries, tackles high oil and food prices.

Analysts forecast the WPI would average 5.5 percent the highest levels since 2004/05.