India forecasts lowest growth in decade

India's economy may grow at the slowest pace in a decade in the current fiscal year, according to forecasts by the country's finance ministry, which predicts inflation will slow enough to allow interest-rate cuts.

Asia's third-largest economy may expand about 5.7 per cent to 5.9 per cent in the year through March, less than an earlier estimate of as much as 7.85 per cent, the ministry said in a mid-year review. That would be the smallest gain since the year ended March 31, 2003, when gross domestic product grew 4 per cent.

The Reserve Bank of India, which decides on monetary policy tomorrow, has so far resisted calls from the finance minister Palaniappan Chidambaram for lower rates, opting to keep the repurchase rate at 8 per cent to damp inflation in October while reducing the cash reserve ratio. Stocks fell after the government cut its growth forecast, paring gains made in recent weeks as India stepped up efforts to push through a policy overhaul and attract foreign investors.

"There is no doubt left that India is faced with a serious economic situation," said NR Bhanumurthy, an economist at the National Institute of Public Finance and Policy. "The central bank might take the recent government measures more seriously and try to provide a more investor-friendly environment."

* Bloomberg News