This document was submitted to the Prime Minister on July 30, 2008.

Outgoing Chairman, Dr. C. Rangarajan and members of the Council comprising Dr. G.K. Chadha, Dr. Satish C. Jha, Dr. M. Govinda Rao and Dr. Alok Sheel were present on the occasion.

Following are the highlights of the Economic Outlook:

Economy to grow at 7.7 per cent during 2008/09 as against 9% in 2007-08

Agriculture 2.0 per cent (4.5% in 2007-08)

Industry 7.5 per (8.5% in 2007-08)

Services 9.6 per cent (10.8% in 2007-08)

A number of factors inimical to growth have intensified in 2008

Sharp elevation in global commodity inflation, especially food and oil

Tightening in credit and equity markets following sub-prime crisis in the U.S

Global slowdown in growth

Impact of adverse global environment on India

Lower growth

Widen the current account

Pressure the fiscal system through widening subsidy bills.

Economy continues to be supply constrained, especially in

Physical and social infrastructure

Electricity, water, road/rail transportation, urban/rural infrastructure and agriculture

Robust employment growth between 1999/00 and 2004/05

2.89% CAGR by UPSS method and 2.6% by CDS method

Highest growth rates in industry and services with wide interstate variations

Outside agriculture sectoral GDP and employment growth rates moved in tandem

Investment rate similar to 2007/08, but savings projected to decline

Investment rate projected at 37.5% and savings at 34.5% of GDP

Lower savings through worsening government finances and erosion in corporate profit.

Current Account deficit estimated at 3.2% of GDP (1.5% in 2007-08)

Merchandise trade deficit $ 134.1 billion (10.4% of GDP, as against 7.7% last year)

Merchandise export growth rate 31.4% (23% in 2007-08)

Non-oil merchandize exports 22.5% higher

Merchandise import growth rate 37.8% (27% in 2007-08)

Crude oil imports 80% & non-oil, non-bullion imports 22.5% higher

Invisibles trade surplus $ 92.7 billion (7.2% of GDP, as against 6.2% last year)

Capital inflows of $ 70.9 billion ($ 108.03 billion in 2007-08)

Net reserves accretion of $ 29.4 billion ($ 92.2 billion in 2007-08)

Surge in Inflation

Mostly on account of rising global commodity prices.

Co-ordinated policy action can bring inflation down to 8-9% by March 2009.

Tight monetary stance necessary

Serious fiscal risks

Fiscal deficit targets to overreach while revenue deficits would persist.

Fiscal deficit improved through higher tax revenues and lower interest payments.

Serious fiscal risks arising from growing off-budget liabilities estimated at 5% of GDP.

Growth Projections for 2008/09

1. Agriculture & allied activities to grow by 2 percent as against 4.5 percent in 2007-08.

2. Mining & Quarrying to grow by 7.5 percent as against 4.7 percent in 2007-08.

3. Manufacturing to grow by 7.2 percent as against 8.8 percent in 2007-08.

4. Elect., Gas & Water Supply to grow by 6.5 percent as against 6.3 percent in 2007-08.

5. Construction to grow by 8.5 percent as against 9.8 percent in 2007-08.

6. Trade, Hotels, Transport, Storage & Communication to grow by 9.8 percent as against 12.0 percent in 2007-08.

7. Finance, insurance, real estate & business services to grow by 10.0 percent as against 11.8 percent in 2007-08.

8. Community & personal services to grow by 8.4 percent as against 7.3 percent in 2007-08.

Industry (2 + 3 + 4 + 5) to grow by 7.7 percent as against 9.0 percent in 2007-08.

Services (6 + 7 + 8) to grow by 9.6 percent as against 10.8 percent in 2007-08.

Non-agriculture (9 - 1) to grow by 8.9 percent as against 10.0 percent in 2007-08.

GDP (factor cost, const. prices) per capita to grow by 6.2 percent as against 7.5 percent in 2007-08.

Projected Balance of Payments for 2008/09

Merchandise Trade Balance would be -134.1 billion dollars which is -10.4 per cent.

Current Account Balance would be -41.5 billion dollars which is -3.2%.

Capital Account Balance would be 70.9 billion dollars which is 5.5 per cent.

Accretion to Reserves would be 29.4 billion dollars as against 92.2 billion dollars last year.(EOM)