India's economy to grow 6 percent

India's growth has slowed but the country still has one of the fastest rates in Asia

In this story: One of fastest-growing economies in Asia Agriculture and industry weak in India RELATED STORIES, SITES

By CNN's Alex Frew McMillan

MUMBAI, India -- India's economy will grow 6.0 percent to 6.5 percent this fiscal year, according to its central bank governor.

Reserve Bank of India Governor Bimal Jalan announced his monetary and credit policy for the 2001-2002 to India's bankers on Thursday.

The banker said inflation is running at 5 percent.

Jalan said growth slowed in the year just ended, and he expects a similar figure for the year through April 2002. But that still means India has one of the strongest growth rates in Asia.

The RBI's forecasts are traditionally more conservative than those from India's finance ministry. Analysts said the figure was achievable.

"There is no optimism there," said Chetan Ahya, India economist for Morgan Stanley. He pegs India's gross domestic product growth at a slightly lower 5.7 percent but called Jalan's figure "realistic."

One of fastest-growing economies in Asia

India and China, which saw 8.1 percent growth last quarter, will be the top performing economies in Asia this year, according to the Asian Development Bank.

Jalan said India's growth hit 6.0 for the fiscal year through March 31. That's down from 6.4 percent last year and 6.6 percent the year before.

His forecast for the current year, which runs to April 2002, is in line with the 6.2 percent growth anticipated by the ADB in a recent report.

India and China are both are more insulated from the U.S. slowdown than other Asian economies. Their large populations and growing middle classes mean they rely on domestic demand to a great extent.

Only 8.9 percent of India's gross domestic product comes from exports.

Asia's other economies are far more export-driven and have been blighted by a slowdown in Japan and the United States. The ADB predicts an average of 5.3 percent growth for developing nations as a whole.

Agriculture and industry weak in India

A slowdown in India's industrial production over the last two to three months has compounded problems with its agricultural sector.

Given the worldwide slowdown and political problems in India, many companies have put off spending. Growth in industry, which is 27 percent of India's economy, is running at about 5.8 percent.

A two-year drought has caused severe problems for India's agriculture. Farming provides a livelihood for 70 percent or so of India's 1-billion plus population, though it accounts for around 23 percent of the economy.

It has grown at just 1 percent the last couple of years, and economists expect only 2 percent to 3 percent growth this year.

But Jalan noted that performance in India's services sector has been good. Services now make up around 50 percent of India's $500 billion GDP.

Lower oil prices and interest rates are helping India. But experts say it needs a turnaround in its farming and renewed industrial confidence before the economy hits its stride again.

"There is a structural problem in the rural economy and a structural problem in the urban economy, that's really the story," Ahya said. "It's really coincidental that everything has gone bad at one time."

Ahya noted that in good times, India races along at growth of close to 8 percent. In bad times, it falls near 5 percent.

ADB sees dip in growth for Asia
China growth hits 8.1 percent in Q1

Asian Development Bank

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