CII projects lower GDP growth of 8% for FY07

NEW DELHI: Industry chamber CII has projected a 8% GDP growth for the fiscal year 2006-07, lower than the 8.4% GDP growth witnessed in FY06. Hardening interest rates, rising fuel prices and inflation are cited as reasons for the expected decline in GDP estimate.

The chamber has noted that both industry and service sectors have registered a year-on-year growth during Jan-March 2005, growing at 8.2% and 10.9% respectively, while manufacturing improved its growth to 8.9% in Q4 of 2005-06 from 8.1% a year ago.

However, the Index of Industrial Production (IIP) growth fell to 8.2% during Q4 2005-06 from 8.4% in the corresponding period of the previous fiscal, with mining reporting a 3% growth in Q4 of FY06, against 3.7% the previous year.

CII, in its latest quarterly on the State of Indian Economy, also pointed out a 9% decline in net sales growth for India Inc after comparing the performance of corporate sector during Q3 of 2005-06 with that of Q3 2004-05. The main reason, it said, was a sharp rise in the ratio of raw-materials to net sales.

The report also argued that rising fuel prices and interest rates are likely to have only marginal effects on the costs for corporate India, as their weights are relatively low, but could impact demand.

Though service sector too witnessed a decline in growth rate of sales, the growth in its expenses declined faster, raising both the growth in profit and profit margins, observed the CII quarterly.

While appreciating the RBI’s effort in keeping inflation well below its own projected target, the chamber pointed out that it would be a challenging task to repeat the feat this fiscal.

The chamber also cautioned about the growing trade deficit, which grew to $39.6 billion during 2005-06 from $25.9 billion a year ago. It suggested allowing some depreciation of the Rupee, currently overvalued to the extent of 7%.