India to grow 7 pct in FY10 if rains normal - adviser

Posted 07 2 2009 7:57PM

NEW DELHI (Reuters) – The Indian economy should recover after September and probably expand 7 percent in the fiscal year to March 2010 if monsoon rains do not fail, a policy adviser said on Monday.

Suresh Tendulkar, the chairman of the prime minister's economic advisory council, also said high bank lending rates continue to be a worry for Asia's third-largest economy, which was hit hard by sluggish demand at home and the global slump.

"Policy rates have been brought down considerably," he told reporters after a business conference. "They have not been reflected in bank rates. They are now getting reflected gradually."

The central bank has cut its key lending rate by 425 basis points between October and April to lower borrowing costs, but commercial banks are yet to match those cuts.

The government had slashed factory duties and stepped up public spending to pump prime the economy as the growth rate tripped to 6.7 percent in 2008/09 from 9 percent or more seen in the previous three years.

"Economic recovery is likely to start only after September," Tendulkar said. "If monsoon doesn't fail, it (growth) will be at least 7 percent."

PRICE PRESSURES

Last week, the government said this year's monsoon rains, a lifeline to its trillion-dollar economy, are expected to be less than normal for the first time in four years.

Inadequate rains could increase prices of food products, dampen domestic demand and delay recovery of the economy and stoke inflation, analysts say.

"WPI (wholesale price index inflation) would still be under 5-6 percent, if monsoons are all right," Tendulkar said when asked where he saw inflation by the end of the fiscal year.

"If monsoons fail, it will be little more."

India's wholesale prices fell a less-than-expected 1.41 percent in mid-June from a year earlier, marking a build-up in price pressures as the economy picks up and the effect of past sharp falls in energy prices wears off.