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Sarkaritel.com News and Features
CII Upgrades GDP Growth
Forecast to 8.6% for FY 07
New Delhi, December 11, 2006
Buoyant economic performance in the first half of the
current year have set the stage for GDP crossing 8.6% growth
mark for the current fiscal says the latest quarterly on the
State of the Economy (SoE) issued by the Confederation of
Indian Industry (CII) here today.
In a Press Release issued on the Quarterly, CII said that
it is revising its forecast of GDP from its earlier forecast
of around 8% GDP growth, prompted by the better-than-expected
performance of the economy in the first two quarters.
CII has pointed out that industry and services sector have
both grown much faster than expected. During H1 07 while
industry recorded a growth of 10.3% services grew by 10.9%
much above their last year corresponding growth of 7.8% and
10.3%. However, at 1.7% growth in Q2, agriculture is a
dampener said CII.
CII analysis reveals that in H2 07, while industry is
likely to improve its performance from 8.5% to 9.1%, services
may witness a slight slowdown to 9.7 from 10.2% of H2 06. The
net result is likely to be a slight decline in the growth to
8.2% during H2 07 compared to 8.4% previous year. Despite the
likely slowdown in the H2 performance, the growth performance
is likely to be better than last year. CII has pointed out
that the performance of the economy would have been much
better had it not been for the climbing inflation and interest
rates.
CII’s quarterly study highlights the fact that the robust
Indian growth would be amidst a rather modest global
performance, since the major chunk of Indian production is
consumed domestically, the growth prospects of the economy are
likely to be largely insulated from the current global
slowdown.
While welcoming the high growth in manufacturing, CII has
cautioned that high growth in manufacturing should not make us
gloss over the poor growth recorded by some of its more labour
intensive sectors. Of the 17 industry sectors under two-digit
classification, the SOE has noted that there are 7 labour
intensive industries - food products (1.7%), Wool, silk & made
textiles (6.6%), Jute & other vegetable fiber textiles
(-0.3%), Wood and wood products (-2.1%), Paper and paper
products (7.9 %), Leather and fur products (-6.5%), Metal
products and parts (3.9%) - which during H1 ’06-07 recorded
low or negative growth. CII has therefore emphasized the need
for making concrete efforts to turn around the performance of
these industries in the interest of balanced sectoral growth
and abundant employment.
With the country’s outstanding debt shooting up maintaining
fiscal discipline is critical for macroeconomic, financial,
external sector and budgetary sustainability and overall
stability of the economy observed CII. Alluding to the
importance of adhering to FRBM norms, CII has said that it
should not happen at the cost of productive expenditure of the
government. Considering that the combined expenditure of the
Centre and State government stands at 27-29%, much below the
average of developed economies where only central expenditure
constitute around 35%. Fiscal consolidation hence should be
revenue driven as there is large scope to widen the tax base
by moderating its rate and increasing the tax-base. Capital
expenditure of the government should not suffer, said CII.
The CII Study has turned up yet another quarter of
impressive performance by India Inc. Analysis of the results
of 9076 firms showed that the PAT and net sales increased by
46.9% and 24.2% respectively compared to 25.8% and 22.2% in
the corresponding period last year. Much of this improvement
came from the manufacturing sector which recorded a growth in
net profit of 58% compared to services where PAT increased by
31% over the corresponding quarter of the last year. CII
however predicts a modest slowdown in the growth of profit in
the next two quarters. While rising inflation would affect
industry, soaring interest rate would affect the services
more, forecasts CII. The Confederation has therefore, asked
the government to take necessary steps to control inflation
without raising the interest rates.
On inflation, the CII analysis has shown that the rise is
largely due to supply-crunch, particularly of basic items.
This can be handled by ensuring availability of short-supply
items in sufficient quantity, suggested CII, as against
another round of interest rate hike.
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