Economic growth to moderate to 7.7% this fiscal: Citi

NEW DELHI: Financial services major Citigroup has projected that India's economic growth in this fiscal would moderate to 7.7 per cent from 9.1 per cent in 2007-08, a forecast pretty similar to the estimate given by PM's Economic Advisory Council on August.

Citi attributes the decline in the GDP growth to a fallout of weak global trend, continuing credit crisis, fiscal profligacy and politics, but adds that lower oil prices and faster structural reforms could boost India's economic growth.

"The recent spate of bad news, weak global growth, the continuing credit crisis, fiscal profligacy, politics creates downside risk to our GDP forecasts of 7.7 per cent for FY09 and 7.9 per cent for FY10," a Citi said in its report 'Global Economic Outlook and Strategy.'

However, we should also watch out for the following factors that might be growth positive: lower oil prices, and faster structural reforms," it added.

Citi also pointed out that price of crude at or below USD 100 per barrel would dampen inflationary expectations, boost economic activity and eliminate the need for additional interest hike.

The report said a one dollar per barrel change in crude oil price increases or decreases the trade account by USD 700 million and under recoveries by oil firms by USD 750 million.

On the other hand, Citi noted that inflation pressures "may take time to ease, given the second-round effect."

"Implementation of the announced reform measures after the Left's departure from government, such as pensions, insurance, and possible privatisations, would likely improve the fiscal position and ease liquidity conditions," the report said.

The Prime Minister's Economic Advisory Council has also projected that the country's economy would grow by 7.7 per cent in the current fiscal.

According to the Advisory Council, the external downside risk to growth expectations is mainly from rising crude oil prices and increasing volatility in the capital markets. It also added that there is some danger at the food price inflation front.

However, Finance Minister P Chidambaram had said he is confident that the economy would grow at close to eight per cent this fiscal.

In July, the Reserve Bank of India scaled down its economic growth projection to around eight per cent from 8-8.5 per cent projected earlier in its annual policy statement of April.