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India
India's economy will continue to grow strongly in 2005/06 and 2006/07. The 2005 monsoon has been strong and economic growth is set to accelerate-to 7.3% (at factor cost) in 2005/06 (April-March) from 7.1% in 2004/05. In 2006/07 growth will moderate to a still robust 6.8%. Despite high international oil prices, we expect almost all sectors of the economy to grow strongly. Agriculture is forecast to grow by around 4.5% in 2005/06, while services will continue their typically robust pace of growth at around 9%. Interestingly, manufacturing, a sector that has traditionally not done well, is forecast to grow by around 7%. In 2006/07 growth in agriculture is forecast to moderate to around 1.5%, but manufacturing and services will continue to grow strongly.
The macroeconomic environment will remain fairly stable. Of the key macroeconomic indicators, inflation will have to be watched most closely. Although we expect inflation to remain low at 4.3% in 2005/06, very high international oil prices and an overheating consumer-finance sector are causes for concern. In its latest quarterly review of monetary policy, the Reserve Bank of India (the central bank) chose to leave its key benchmark rate unchanged at 6%. However, it did state that...