News: Indian economy to grow more than expected in 06/07

(RTR 16/11/2006) Mumbai - India's economic prospects have brightened this fiscal year, with economists raising their growth forecast to 8 per cent from the 7.5 per cent projected three months ago as industrial output steams ahead, a Reuters poll shows.

However, full-year growth to the end of March 2007 will still not match the sizzling 8.4 per cent pace of 2005/2006, the quarterly poll shows.

The poll sees 2007/2008 growth at 7.6 per cent.

Last month the central bank raised its growth forecast for the current fiscal year to about 8 per cent from an earlier 7.5-8.0 per cent but warned there was a risk of overheating.

"The momentum is clearly coming from non-farm sectors," ICICI Securities vice president A. Prasanna said.

"The economy is possibly expanding slightly ahead of its potential, but I would hesitate to say that it is overheating," he said.

Industrial output in the first half of the fiscal year rose 10.9 per cent from the same year-earlier period as manufacturing maintained a fast momentum.

Industry makes up about 25 per cent of India's GDP, services -- which are also expanding quickly -- make up just over 50 per cent and agriculture about a fifth.

The central bank has raised its main borrowing rate by 75 basis points this year to 6.0 per cent to cool demand pressures and combat inflation. It has raised its main lending rate by 100 basis points to 7.25 per cent.

Wholesale price inflation is forecast at 5.3 per cent in 2006/07, up from 4.5 per cent in 2005/06.

Finance Minister Palaniappan Chidambaram said earlier this month that containing inflation expectations was the government's immediate goal and it was prepared to take fiscal measures to pull inflation back towards 4 per cent.

The trade deficit is expected to widen as the economy sucks in crude oil, raw materials and machinery to support expansion. India imports two-thirds of the oil it consumes.