News: 'GDP growth seen at 8.6% in FY07'

(RTR 11/12/2006) New Delhi - An industry lobby group on Monday raised India's economic growth forecast to 8.6 per cent for 2006/07 from 8 per cent earlier, despite hardening of interest rates and higher inflation.

India's gross domestic product (GDP) was up by 9.1 per cent in the first half of the fiscal year to March 2007, and the prime minister said on Saturday he expected the economy to sustain 8 per cent growth during 2006/07.

The Confederation of Indian Industry (CII) said in a report the economy is likely to grow by 8.2 per cent during Oct-March compared with 8.4 per cent in the same period last fiscal.

The lobby group expects industrial growth to be 9.1 per cent in Oct-March period, higher than 8.5 per cent in the same period a year ago but lower than 10 per cent in April-September. "We expect a slight decline in the growth of profits of firms in the second half compared with that in the first half," CII's head of economic policy, M. Sen Gupta, told Reuters.

CII however expects GDP to expand by 8.6 per cent in the full year compared with 8.4 per cent in 2005/06.

"The performance of the economy would have been much better had it not been for the climbing inflation and interest rates."

India's central bank on Friday raised the cash reserve ratio by 50 basis points to 5.5 per cent. During 2006, the Reserve Bank of India also raised its key lending rate -- repo rate -- by 100 basis points and the reverse repo rate by 75 basis points.

"While rising inflation would affect industry, soaring interest rate would affect the services more," it added.