speed breaker Growth momentum is vulnerable to inflation and overheating Domestic consumption-led growth is getting translated into investment-led growth Rating agency estimated the risk of fiscal slippage at Rs 5,000 crore, which is about one percentage point of GDP Crisil expects inflation to be at 5-5.5 per cent for 2007-08 Metals, automobiles and cement sectors are expected to drive the growth in investments

Mumbai, March 5: Domestic rating agency Crisil today projected that the growth rate for the Indian economy could moderate to 7.9-8.4 per cent during 2007-08 due to a combination of global and local factors. This is against the 9.2 per cent growth rate projected by the government.

According to Subir Gokarn, executive director and chief economist of Crisil, while a mild slowdown in the US economy, relative to its 2006 performance, and a drop in the Chinese growth rate are key global factors, growth momentum is more vulnerable to high inflation and overheating in the domestic economy.

The Indian economy grew at an average rate of 8.6 per cent 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 of the world, Crisil said.

In its India Outlook 2007, Crisil said 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 and a little overheating.

Gokarn added that with GDP growth expected at around 8 per cent, the fiscal targets for 2007-08 appear to be within reach. The rating agency estimated the risk of fiscal slippage at Rs 5,000 crore, which is about one percentage point of GDP.

For 2007-08, Crisil expects inflation to be at 5-5.5 per cent. Amid such conditions, the sectors that are expected to drive the growth in investments include metals, automobiles and cement, owing to capital expansion and resulting investments in plant and machinery and a rapid growth in the construction segment led by the non-housing sector.

Ajay Dwivedi, CEO, Crisil Research & Information Services Ltd, the research subsidiary of Crisil, said, “The share of housing investments in construction is expected to decrease from two-thirds in the past five years to less than 60 per cent in the next five years. The fastest growth in the construction segment is expected in ports and airports and office space segments, albeit, on a smaller base. On the other hand, the largest quantum of investment growth is likely in roads and railways, urban infrastructure, irrigation and industrial sectors.”

Meanwhile, in their second joint publication on the Indian corporate sector, Standard & Poor’s (S&P) and Crisil, said the overall Indian corporate sector continues to demonstrate an adequate financial risk profile.

In the report, Indian Top 100 Corporates, the duo evaluated the credit trends of 100 selected corporations in the past three to four years and assessed their credit profiles.

“The operating margins of the selected companies are experiencing some pressure,” said Anshukant Taneja, director & team leader, Asia ex-Greater China, corporate & infrastructure ratings, S&P. He added that this is due to the volatility in prices, which has either affected the companies’ topline sales or their costs of production.