India's GDP to grow by 9pc in '07-08, managing liquidity a challenge

FE Team | Published: July 18, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

NEW DELHI, July 17 (Agencies): The Prime Minister's Economic Advisory Council yesterday projected India's GDP growth will moderate to nine per cent in 2007-08 and warned constraints posed by farm and power sectors may make sustaining even this level difficult in the years ahead.
In its report presented to Prime Minister Manmohan Singh, the council expected inflation to remain close to 4 per cent and foreign direct investment to swell to USD 15 billion.
The panel's estimates for GDP growth are lower than the 9.4 per cent growth in 2006-07 but higher than the projections of other agencies including RBI. It is also higher than the 8.6 per cent average growth during last three financial years.
Identifying increased capital inflows as a challenge to liquidity management, the council suggested letting the rupee appreciate further, liberalising capital outflows and putting restrictions on some capital inflows (like external commercial borrowings). It, however, discouraged limiting equity inflows calling such a move "most unwise."
"Equity investment is high risk and policy continuity is an essential element to maintain such flows; They cannot be turned on and off at will. However, on the debt side, there are some areas that can do with some scrutiny."
"In India, the magnitude of capital inflows and their potential to induce large changes in relative prices will have serious repercussions for domestic business in both the domestic and export markets," the report warned.
Meanwhile, Washington report says: The World Bank said yesterday that two India-based pharmaceutical firms have been temporarily barred from further contracts for misconduct in a Bank-funded health project.
Nestor Pharmaceuticals Ltd and Pure Pharma Ltd, "were found to have engaged in collusive practices in connection with the Bank-financed Reproductive and Child Health Project (RCH I) in India," the Bank said without elaborating on the practices.