By Kartik Goyal Feb. 26 (Bloomberg) -- India’s expansion slowed in the fourth quarter, reflecting a poor monsoon rainfall that hurt farm output, underscoring the influence of agriculture in a nation aiming to become the world’s fastest growing economy. Gross domestic product grew 6 percent from a year earlier after gaining 7.9 percent in the previous quarter, the Central Statistical Organisation said in New Delhi today. The government forecasts growth to quicken to 7.2 percent in the year to March. Finance Minister Pranab Mukherjee, who will today unveil the budget for the year starting April 1, may borrow more to support agriculture and consumer demand in the countryside where almost 700 million Indians live. Mukherjee, at the same time, is under pressure from investors and rating companies to narrow the budget deficit from a 16-year high. “The one-off drop in GDP is due to agriculture and not a reflection of trend growth, which is strong,” said Rahul Bajoria, an economist at Barclays Capital in Singapore. “Tackling inflation and curbing the fiscal deficit will be a major policy challenge in the short term.” Rural Economy The impact on farming of last year’s weakest monsoon rains since 1972 were felt the most in the three months to December, Pronab Sen, the government’s top statistician, said last month. Agriculture may recover in the current quarter to March 31 as the winter crop has fared better, Sen said. Even so, Mukherjee may allocate more funds to strengthen the rural economy and reduce India’s reliance on rains each year to water crops. Debt sales may rise 2 percent to a record 4.6 trillion rupees ($99 billion) in the 12 months starting April 1, according to the median forecast of 13 economists and investors in a survey. The budget deficit may narrow to 4.5 percent of gross domestic product in the next fiscal year from 6.8 percent of GDP, Bajoria estimated. India’s economy may grow 8.2 percent in the next financial year, Finance Ministry projections showed yesterday. That’s because industrial production and services, which make up more than three-quarters of the nation’s $1.2 trillion economy, are gaining strength. Industrial output rose 16.8 percent in December, the fastest pace since at least 1994, the government said Feb. 12. Unwind Stimulus Sales at passenger carmakers including Maruti Suzuki India Ltd., Hyundai Motor Co.’s local unit, rose 32 percent in January from a year earlier to a record 145,905 units, the Society of Indian Automobile Manufacturers said on Feb. 9. That’s the highest since at least 1950, the society said. Mukherjee may raise excise and service tax to curb excessive consumer demand from accelerating inflation, which touched 8.6 percent in January, the most in 15 months, economists said. “We expect the government to begin an unwinding of its significantly accommodative fiscal stance,” Tushar Poddar, an economist with Goldman Sachs Group Inc., said before the GDP report. “Domestic demand is galloping ahead and inflationary pressures are building up.” Poddar expects the government to raise the service tax to 12 percent from 10 percent and increase the excise duty by 2 percentage points. To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

Source