Indian PM sees better GDP growth amid rising downgrades

Reuters: Prime Minister Manmohan Singh expects a better performance from the economy this fiscal year even as private economists cut growth forecasts for Asia’s third largest economy, citing a drought and policy gridlock.

Several research organisations including Moody’s Analytics have predicted that the pace of economic expansion in the fiscal year to end-March 2013 would be less than 6 per cent, the worst in a decade. Early this year, the government had forecast a growth rate of about 7.6 per cent.

However, Singh played down on Saturday the lower forecasts, saying the fundamentals of the economy remained strong.

“We shouldn’t draw unwarranted conclusions. This year we will see better than 6.5 per cent (gross domestic product) growth of last year,” he said.

“We have the highest savings and investments rate in the world.”

The government is considering higher rural spending, a sugar export tax and zero import duty to mitigate the impact of a drought following disappointing monsoon rains in recent weeks, which one of Singh’s aides said could reduce GDP growth to 6 per cent this fiscal year.

India’s economic growth hit a nine-year low of 5.3 per cent in the first quarter of 2012, weighed down by a political logjam, high interest rates at home and an uncertain global economy.

Both industrial output and exports have fallen from year-earlier levels in three out of the last four months.

A flagging economy has not only put the South Asian nation’s investment-grade credit rating in jeopardy, but is also seen undermining the support base of the ruling Congress party.

Singh – the architect of the transformational opening of India’s economy in the 1990s – is under pressure to revitalise his government ahead of a 2014 general election with a cabinet reshuffle.

A reshuffle is widely expected after the parliament session ends in early September and could include a cabinet job for Rahul Gandhi, the scion of the Gandhi-Nehru dynasty and the son of Congress leader Sonia Gandhi.

The prime minister, however, declined to disclose the timing of a reshuffle nor did he confirm Gandhi’s inclusion in his cabinet, merely saying, “I have always said that I would welcome Rahul’s entry (to the government).”