Page last updated at 17:19 GMT, Thursday, 7 February 2008

Indian economy set to decelerate

Rice sowing in an Indian paddy field
Agriculture has lagged growth in other sectors.

India expects its economy to grow by 8.7% in the financial year ending March, the slowest rate of expansion in three years.

Finance minister Palaniappan Chidambaram said the lower-than -expected growth was due to a slowdown in agriculture.

Growth remains strong in the country's services, construction and communications sectors.

India's economy expanded by 9.6% in the year ended March 2007.

Despite the forecast of slower growth, India is still the world's fastest growing major economy after China.

The central statistical organisation figures are lower than what I had anticipated. We are disappointed but we are not despondent,
Indian Finance Minister Palaniappan Chidambaram

But both China and India are expected to slow slightly in the coming year as a severe US downturn saps demand for exports.

High Indian interest rates have led to a stronger currency that could make the country's exports more expensive on world markets.

But spending by the country's emerging middle class of 50 million - equal to the combined population of Singapore, Hong Kong, Malaysia and Australia - should help sustain growth.

Agriculture lags

Agriculture, which provides livelihoods for some 70% of India's population of more than 1.1 billion, is forecast to grow by 2.6% in the year to end March, down from 3.8% in the previous financial year, the government's statistics bureau said.

Industrial growth was also expected to slow slightly.

By contrast, activity in services, trade, hotels, transport and communications industries was expected to expand by 12.1%.

India has become a centre for US and UK firms that want to outsource services ranging from analysing equity markets to handling customer queries.

"I am reasonably confident that figures may be revised and economy will grow at close to 9%," Mr Chidambaram said.

"The central statistical organisation figures are lower than what I had anticipated. We are disappointed but we are not despondent," he added.


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