Inflation to moderate in H1 of ?09-10: RBI survey

The ?Survey of Professional Forecasters? conducted by the Reserve Bank of India (RBI) has found that headline inflation, on a year-on-year basis, in the third and fourth quarters of 2008-09 are revised upwards to be 12.3% and 9.7 % respectively.

Inflation is expected to come down moderately in the first half of 2009-10. The inflation based on CPI-IW in the last two quarters of 2008-09 is forecast at 8.8 % and 8.5 % revised downwards from earlier forecasts of 10.5 and 9 % respectively. Long term forecast for real GDP for the next five years is pegged at 8.0 % which is same as was in the last survey. For the next ten years, the GDP is expected to grow at 8.1 %, revised downwards from 8.5 %, in the last survey.

The ?Survey of Professional Forecasters? conducted by the RBI presents short to medium term economic developments on major macroeconomic indicators like component-wise detailed forecasts of GDP growth, inflation, savings, capital formation, consumption expenditure, export, import, interest rates, money supply, credit growth, stock market movements and corporate profit.

The survey relating to the second quarter of 2008-09 was launched during the second half of September 2008. The questionnaire was sent to 40 selected forecasters, of which 23 forecasters participated in this round.

However, the results of the survey in no way reflect the views or forecasts of the Reserve Bank of India. The forecasters have revised their real GDP growth rate forecast downwards to 7.7% in 2008-09 and further to 7.5% in 2009-10. The real GDP growth originating in industry for the year 2008-09 has been revised downwards to 7.0 % from 7.5 % in the earlier survey.

The proportion of domestic saving to GDP is indicated to be 34.8 % in 2008-09 which was 35 % in the last survey.

Forecasters expect gross domestic capital formation to contribute 36.3 % to real GDP in 2008-09 (same as in last survey), while contribution of gross fixed capital formation is expected to be 33.5% (revised downwards from 34.0 %).

The forecasters have revised the growth rate of private final consumption expenditure in 2008-09 to 7.4 % against 7.1 % in the last survey. The profit growth of corporate sector in 2008-09 has been revised upwards at 18 % from 16 % in the last survey.

The growth is expected to improve to 18.5 % in 2009-10. Broad money (M3) is expected to slow down to 19 % in 2008-09 which is lower than its previous forecast of 19.5 %. The bank credit is expected to grow at the rate of 22 % in 2008-09 against previous forecast of 20%.

The proportion of government?s fiscal deficit in GDP is expected to be 3.5 % in 2008-09, whereas the combined gross fiscal deficit is placed at 6.5 %.

Both these figures have been revised downwards from 3.9 % and 6.9 % respectively in the last survey. Most of the forecasters expect further depreciation in rupee vis-?-vis US dollar and to reach the level of 44.3 vis-a-vis US dollar in 2008-09. In the last survey the rupee was kept at 42 vis-?-vis the US dollar for the current financial year.

Yield on treasury bills (91 days) is revised to 8.4 % by the end of 2008-09 (revised upwards from 8.2 % in the last survey) whereas 10-year government securities yield are forecast to be at 8.5 % which is lower than the earlier forecast of 8.8 %.

The Forecasters expect overall BoP to be $12.4 bn. in 2008-09, down from their earlier forecast of $ 23.1 bn. in the last survey. Growth rate in exports has been kept at the same level of 20 %as in the last survey. Forecasters revised their imports growth forecasts downwards to 27.2 % from 29.5 % in the last survey.

Forecasters put net surplus under invisibles during 2008-09 to be $ 85.5 bn. which is slightly lower than $ $ 86.0 bn. expected three months ago.