India economy to pick up speed: finance ministry

India's economic growth will pick up speed over the next two years, a report card on Asia's third-largest economy forecast on Thursday, a day before the government presents its budget.

"By any cross-country comparison, India remains among the (economic growth) front-runners," said the survey, a summation of the nation's prospects traditionally presented before the spending plans.

The study, prepared by the finance ministry, projected the economy would grow 7.6 percent in the next fiscal year to March 2013 and 8.6 percent the following year.

The economy should grow 6.9 percent this year -- the slowest pace since the 2008 global financial crisis -- but there are signs "the weakness in economic activity has bottomed out and a gradual upswing is imminent," it said.

Growth has been hurt by aggressive monetary tightening to contain stubborn inflation while a weakening global economy has hit export demand.

The survey said it expected the central bank to lower interest rates in coming months owing to an expected easing of inflation. However, the survey's release came as the Reserve Bank of India left rates on hold, citing worries a rise in global oil prices could again stoke inflation.

The fiscal deficit -- the gap between spending and revenues -- would likely exceed a budget target of 4.6 percent of gross domestic product for this financial year, the survey said.

But it should narrow to 4.1 percent in the next fiscal year and to 3.5 percent in the next 12 months, the survey added.

Narrowing of the deficit is crucial to reduce government borrowing and interest costs, and attract vital investment to fund the improvement of India's dilapidated infrastructure and bolster growth, economists say.

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