The Reserve Bank of India today released the results of quarterly survey of professional forecasters on major macro economic indicators of short to medium term economic developments. The Reserve Bank has been conducting the survey on a quarterly basis from the second quarter ended September 2007. Done through a questionnaire sent to 31 selected forecasters, the survey covers component-wise detailed forecasts of GDP growth, inflation, savings, capital formation, consumption expenditure, export, import, interest rates, money supply, credit growth, stock market movements, corporate profit, etc. The Reserve Bank will disseminate the survey results through its website on a regular basis.

The results of the survey represent views of the respondent forecasters and in no way reflect the views or forecasts of the Reserve Bank of India.

Alpana Killawala
Chief General Manager

Press Release : 2008-2009/135

The 'Survey of Professional Forecasters' conducted by the Bank presents short to medium term economic developments on major macroeconomic indicators like component-wise detailed forecasts of GDP growth, inflation, savings, capital formation, consumption expenditure, export, import, interest rates, money supply, credit growth, stock market movements, corporate profit, etc. The results of the fourth round relating to the first quarter of 2008-09 are presented below. The questionnaire was sent to 31 selected forecasters, of which 20 forecasters participated in this round.

Note that the results of the survey represent views of the respondent forecasters and in no way reflect the views or forecasts of the Reserve Bank of India.

Overall results of this round suggest a moderation in economic activity for each of the three forthcoming quarters and for 2008-09 on the whole. Some of the salient features are as follows:

Annual Forecasts:

• Forecasters have revised their real GDP growth rate forecast downwards to 7.9 per cent in 2008-09. They however, expect it to improve to 8 per cent in 2009-10. The forecasters are asked to assign the probabilities to the possibility that year over year real GDP will fall into various growth ranges. The highest 57.3 per cent probability was assigned to growth range of 7.5-7.9 per cent for the year 2008-09. For the year 2009-10, they assign highest 45.6 per cent probability to 8.5-8.9 per cent growth range of GDP. The chart 1 below shows mean probability distribution of real GDP growth forecasts.

• Real GDP originating in industry and services sector for the year 2008-09 have been revised to 7.5 and 9.5 per cent. The growth rates were forecast to be 8.1 and 9.7 per cent in the earlier survey. The growth forecast for agriculture GDP remains the same as in the last survey at 3 per cent. For the year 2009-10, these sectors are expected to grow at the rate of 3.3, 7.7 and 9.4 per cent, respectively.
• Forecasters expect gross domestic capital formation to contribute 36.3 per cent to real GDP in 2008-09, while contribution of gross fixed capital formation is expected to be 34.0 per cent (both these figures have been revised upwards from the last survey). The proportion of domestic saving to GDP is indicated to be at 35 per cent in 2008-09 which is same as the forecast of last survey. The forecasters have revised the growth rate of private final consumption expenditure to 7.1 per cent against 6 per cent in the last survey.

• The forecasters have again revised profit growth of corporate sector downwards in 2008-09. Profit after tax is forecast to grow at the rate of 16 per cent in 2008-09 as against 25 per cent expected in last survey. It is, however, expected to improve to 20 per cent in 2009-10.

• Broad money (M3) is expected to grow at the rate of 19.5 per cent in 2008-09 which is higher than its previous estimate of 19 per cent. The bank credit is expected to slow down to 20 per cent.

• One of the key deficit indicators of central government finances viz. fiscal deficit is expected to widen to 3.9 per cent of GDP in 2008-09, whereas the combined gross fiscal deficit is placed at 6.9 per cent of GDP.

• Indian rupee is expected to depreciate to 42 vis-à-vis US dollar in 2008-09. Yield on treasury bills (91 days) are revised to 8.2 per cent by the end of 2008-09 whereas 10-year government securities yield are forecast to be at 8.8 per cent which is higher than the earlier forecast of 7.8 per cent.

• The forecasters expect Repo and Reverse Repo rates to be at 8.9 and 6.4 per cent respectively by the end of current financial year. Both the rates have been revised upwards from the last survey.

• Merchandise trade deficit is expected to widen to US $126.2 bn. in 2008-09 which is higher than the earlier estimate of US $115.5 bn. Forecasters expect exports to improve further in 2008-09 as the growth rate has been revised from 16 per cent in the last survey to 20 per cent. Forecasters further revised their imports growth forecasts upward substantially to 29.5 per cent from 20 per cent in the last survey. Forecasters put net surplus under invisibles during 2008-09 to be US $ 86.0 bn. which is slightly lower than US $ 86.4 bn. expected three months ago.

Quarterly Forecasts:

• The real GDP growth in second and third quarter is projected at 7.7 and 7.6 per cent. During the fourth quarter of current financial year, the GDP growth is placed at 7.5 per cent.

• Median forecasts for real GDP originating from agriculture, industry and services sectors in second quarter of 2008-09 are projected to be 3.4, 7 and 9.6 per cent respectively. For agriculture sector, the forecasts have been revised upwards (from 3 per cent in the last survey). The projection for industry has been revised downwards from 8.5 per cent in the last survey. For the third quarter of current financial year, the forecasters have kept the growth rates at 3.1, 7.4 and 9.6 per cent respectively. Index of Industrial Production growth forecasts in second and third quarters of 2008-09 are kept at 7 per cent and 7.3 per cent respectively. For the last quarter, the IIP is projected to grow at 7.4 per cent.

• Contribution of gross domestic capital formation to GDP has been forecast at 36 per cent in second quarter of current financial year, which is same as projected in the last survey. In the third quarter, the same is expected to be 35.8 per cent. Growth rate of corporate profit have been revised further downwards to 17.4 and 16 per cent respectively in second and third quarters of 2008-09. During the last quarter, the growth rate is kept at 20 per cent.
• Forecasters expect repo rate to go up further in second and third quarters of current financial year to 8.8 and 9 per cent respectively. Forecasters also expect increase in CRR in the remaining quarters of 2008-09. They expect CRR to reach the level of 9 per cent by the end of second quarter of 2008-09 and further to 9.3 per cent by the end of the third quarter.

Forecasts on prices:

• Forecasters’ median estimate for WPI inflation on a year over year basis in the second, third and fourth quarters of 2008-09 are projected to be 11.7, 11.4 and 9.2 per cent respectively. The projections are higher than the earlier forecasts for the same period. The inflation based on CPI-IW has also been revised upwards to 10, 10.5 and 9 per cent respectively during the period.

• The forecasters were asked to assign the probabilities to the possibility that fourth quarter over fourth quarter WPI inflation will fall into various growth ranges. The probabilities for 2008-09 are changed from those assigned in the survey three months ago. They see 40 per cent chance that WPI inflation will fall in the range 9-9.9 per cent in 2008-09. However, they expect it to come down to 5-5.9 per cent in 2009-10. Chart 2 below shows mean probability distribution of WPI forecasts.

Long Term Forecasts:

• Long term forecasts for real GDP for the next five years as well next ten years are revised downwards to 8 per cent and 8.5 per cent (against 8.5 and 8.9 per cent respectively in the last survey , table A.7 and table A.8).

• Over the next five years, the forecasters expect WPI inflation to be 6 per cent, which is revised upwards from the last survey. CPI-IW inflation has also been revised upwards to 6 per cent. Over the next ten years, the WPI and CPI-IW based inflation are expected to be 5 and 5.4 per cent, respectively.