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Finance crisis will derail 11th Plan: IEG

Source: PTI
October 27, 2008 14:29 IST
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The on-going global financial turmoil would have 'significant impact' on India and would pull down its economic growth rate to seven per cent in fiscal 2009, an economic think tank has said.

'The impact of this financial crisis on India is also going to be significant as India is not decoupled with the global macro economic behaviour,' the Institute of Economic Growth said in its monthly monitor, adding the growth will slip to seven per cent from nine per cent in the previous year.

The impact of the global meltdown, the report said, will also 'spill over to the next fiscal... and would derail the 11th Plan growth target of nine per cent.'

The Reserve Bank, in its mid-term monetary policy review, also revised its growth forecast to 7.5-8 per cent from its earlier projection of eight per cent for 2008-09, in view of the global crisis.

Prime Minister Manmohan Singh had stated that India will achieve a growth rate of 7.5 per cent to eight per cent this year despite the current economic global turbulence.

Referring to the impact of the global crisis on India, the IEG report said, the flight of foreign capital has created liquidity problems: 'In the medium term, this is expected to pull down industrial output growth which is already in a slowdown phase.'

Major impact, it said, will be felt by sectors like trade, hotels, insurance, etc, which are 'strongly linked' with the global economy.

The downward revision in the GDP forecast, it said, 'is due to expected slowdown in the services sector output growth, in which some of the sectors are largely dependent on global economy (the US in particular) that is facing a recessionary threat.'

The IEG report pointed out that the sharp decline in industrial production growth during April-August together with the decline in the second quarter corporate results indicate that this year overall industrial growth would be much smaller than last year's growth of nine per cent.

IIP growth slowed to 1.3 per cent in August against the growth of 10.9 per cent a year ago.

On the positive side, the report said, declining oil prices will have a benign impact on domestic economy and will have implications on overall interest rate and may stimulate domestic demand.

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