India sets higher 8% growth target

Customers buy vegetables in a New Delhi market. The Indian economy grew its fastest in 18 months. (AFP)

The Indian economy will expand eight per cent in 2010/11 after growing between seven and 7.5 per cent in the current fiscal year to end-March, the prime minister's economic advisor C Rangarajan said.

"There is reason why I expect eight per cent growth in the next fiscal year. Agriculture would improve with normal monsoon and it would add 0.5-1 per cent in the GDP growth," he told The Times of India.

India's economy grew an annual 7.9 per cent in the quarter through September, its fastest in 18 months, prompting the finance ministry to revise the growth forecast for the current fiscal year to around eight per cent from 7.0 per cent.

The economy expanded 6.7 per cent in 2008/09 (April-March), slower than the nine per cent or more in the previous three years.

Rangarajan also said the economy would return to an annual growth rate of nine per cent in the fiscal year to end-March 2012 on the back of an improvement in the world economy and global trade.

India's exports rose for the first time in 14 months as recovery in the global economy boosted year-end holiday demand for its products.

Overseas shipments increased 18.2 per cent to $13.2 bn (Dh48.44bn) in November from a year earlier after sliding an average 21 per cent per month since October 2008, according to a trade ministry statement. Imports fell 2.6 per cent to $22.8bn in November, resulting in the trade deficit narrowing to $9.6bn from $12.3bn a year ago.

Record-low interest rates and more than $2 trillion in government stimulus worldwide are reviving demand for clothes and cars. South Korea's exports rose 33.7 per cent in December, the fastest pace in 17 months, as Asian economies from China to Singapore recover from the worst global recession since the 1930s.

"We are seeing a rebound in overseas sales mainly due to improved conditions in the US and Europe and festival demand ahead of Christmas," said NR Bhanumurthy, an economist at the National Institute of Public Finance and Policy in New Delhi.

A return to export growth may boost production at companies in India and bolster the revival in Asia's third-biggest economy, which expanded 7.9 per cent in the three months to September 30 from a year earlier, the quickest pace in six quarters.

Some sectors have started showing signs of improvement. Overseas sales of Indian gems and jewelry jumped 54.8 per cent to $21.4bn in November compared with $13.8bn in the same month a year ago, according to the Gem & Jewellery Export Promotion Council. Vehicle exports rose 25 per cent in November from a year earlier, the Society of Indian Automobile Manufacturers said December 8.

November's increase in exports shouldn't be seen as the beginning of a positive trend, as shipments rose mainly due to a low base in the same month last year, Bhanumurthy said. The difficulties for exporters and the Indian economy are not yet over, he said.

"The surge in inflation will result in increasing input costs for exporters, forcing them to raise prices and making it difficult for them to remain competitive in overseas markets," Bhanumurthy said.

India's benchmark wholesale-price index climbed 4.78 per cent in November from a year earlier, more than tripling from a 1.34 per cent gain in October, the government said on December 14. A stronger rupee is also affecting exporters' earnings, according to the Federation of Indian Export Organisations.

The Indian currency strengthened 4.8 per cent in 2009 to 46.5275 per dollar in Mumbai on Friday, according to data compiled by Bloomberg. That was the third-best performance among Asian currencies after Indonesia's rupiah and the South Korean won.

The rupee gained as foreign funds raised their holdings of the nation's stocks to a record as the benchmark Sensitive Index rallied the most in 18 years.

 

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