India's economic growth could accelerate by as much eight percent in the next fiscal year despite a difficult global climate, a top government panel said Wednesday.
Asia's third-largest economy has lost momentum as the central bank raised interest rates 13 times since March 2010 to reduce inflation from near double-digits to its current 26-month low of 6.55 percent.
"We might be able to reach a growth rate of eight percent" in the next fiscal year to March 31, 2013, said C. Rangarajan, head of Prime Minister Manmohan Singh's Economic Advisory Council, putting the range at 7.5 to eight percent.
Rangarajan forecast growth of 7.1 percent growth for the current fiscal year that ends on March 31, the slowest rate in three years and far below the panel's initial bullish forecast of nine percent expansion.
His prediction, which noted strong farm and service sector growth, was slightly higher than the government's official expectation of 6.9 percent expansion for this year.
"But to get back to nine percent growth we need a more hospitable global environment," Rangarajan said. "Until the global environment clears, we should be able to achieve eight percent (annual) growth."
India clocked three years of over nine percent growth from 2006 to 2008.
Government experts have traditionally seen at least nine to 10 percent growth as the minimum level to substantially reduce the crushing poverty afflicting hundreds of millions of Indians.
Rangarajan projected inflation for next year at five to six percent, allowing the central bank to roll back its aggressive interest rate hikes and spur investment spending.
But he said that India's fiscal deficit "will be in excess" of the government target of 4.6 percent of gross domestic product for this year, due to a swelling subsidy bill and weak tax revenues sparked by slowing growth.
He called on the government to "incontestably demonstrate" in the budget to be presented next month that the government's finances are on the path of fiscal consolidation which would require spending cuts.
Analysts expect the fiscal deficit to be around one percentage point over the target.
The forecast of faster growth and lower inflation is welcome news for the national Congress ruling party, which has been buffeted by a string of corruption scandals and accusations of policy paralysis.
But the council's growth forecast for next year was much more optimistic than those of many private economists -- some of whom expect growth in the low six percent range.
India's economy grew by 8.4 percent in the last fiscal year to March 31, 2011.
Even with the failure of Singh's Congress-led government to enact any significant financial reforms since its re-election in 2009, India would continue to attract foreign investors, Rangarajan said.
"If we can put the economy on a higher growth path, this will be a big attraction for capital flows -- this will be the magnet," he said.
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