CRISIL says sign of overheating for Indian Economy

After growing at 8.6% in the last four years, the Indian economy is all set to soften a bit amid rising inflation and some signs of overheating, domestic credit ratings agency CRISIL said on Monday.

For 2007-08, the GDP growth is expected to moderate to 7.9 - 8.4%, CRISIL said in a report. Asia's fourth-largest economy is estimated to grow by 9.2% in the current fiscal year on top of the 9% growth in FY06.

Inflation, which is currently just above 6%, is projected at 5-5.5% while 10-year G-sec yield is expected to be at 7.8-8%, CRISIL said. The INR/US exchange rate is expected to stay in the band of Rs 44-45 in 2007-08, it added.

According to CRISIL, the Indian economy continues to demonstrate robust growth driven by all sectors of the economy, with the underlying domestic consumption-led growth that is swiftly translating into investment-led growth, with a little overheating.

"A combination of global and domestic factors could moderate the growth momentum slightly in fiscal 2008. A mild slowdown in the US economy, relative to its 2006 performance, and a drop in the Chinese growth rate are key global influencers; however, growth momentum is more vulnerable to high inflation and overheating in the domestic economy," noted Dr Subir Gokarn, Executive Director and Chief Economist, CRISIL.

The Indian economy grew at an average rate of 8.6% between 2003-04 and 2006-07. " This is not only the strongest ever growth stimulus in India since its independence but also puts it in the league of the fastest growing economies in the world," the CRISIL report said.

These and other conclusions were made in the India Outlook 2007 presented by CRISIL, providing trends and outlook for the Indian economy, manufacturing, services and infrastructure sectors.