India's economic growth is likely to be significantly lower, at around 7 per cent, in the second half of fiscal 2008-09 as the impact of slower export growth and weaker domestic demand, including a possible dampening of private investment, begin to be felt, the government said in a mid-term review of the economy.

Real GDP growth in the country in the first half of the fiscal year has been 7.8 per cent, which is fairly robust. But, it will be difficult to make a precise forecast about growth prospects for the whole year at this stage because of uncertainty, though the expectation is that it would be in the range of 7 to 8 per cent. We have to be prepared, however, for growth to be around 7 per cent in 2008-09 as a whole, it said.

The `Mid Year Review of India Economy 2008-09' presented in Parliament by minister of state for finance PK Bansal said while GDP growth may dip, it expects the declining trend in inflation to continue.

In respect of agriculture, as per the first advance estimates of kharif production for 2008-09, production of foodgrains, oilseeds, cotton and sugarcane is estimated at 115.3 million tonnes, 17.9 million tonnes, 23.9 million bales and 294.7 million tonnes, respectively.

This represents an increase of 2.8 per cent in foodgrains production with respect to the first advance estimates of 2007-08, but shows a  decline of 4.7 per cent in comparison to the fourth advance estimate.

This decline is across most coarse cereals and pulses. Rice output, however, is expected to record modest gains. Output of kharif oilseeds, cotton and sugarcane is also expected to decline, it said.

Overall growth of industrial production in April-September 2008 is estimated at 4.9 per cent year-on-year compared to a growth of 9.5 per cent in April-September 2007. The growth in manufacturing GDP during this period was slightly higher at 5.3 per cent. The deceleration in growth was significant for manufacturing and electricity sectors, and somewhat moderate for the mining sector.

Merchandise exports during the first seven months of 2008-09 (April- October) valued at $108 billion was higher by 23.7 per cent (in dollar terms) over the previous year. However, exports during October 2008 registered a negative growth rate of (-) 12.1 per cent over October 2007, mainly due to a spike in the growth rate to 48.8 per cent registered in October 2007.

For the same period, total value of imports was $181 billion - a growth rate of 36.2 per cent over the corresponding period of the previous year.

The trade deficit, for this period is estimated at $73 billion, which is 60 per cent higher than the deficit of $45.6 billion during April-October, 2007.

In the current financial year, as per the data on BOP released by the RBI the current account deficit was at $10.7 billion. Foreign exchange reserves (excluding gold, SDRs and reserve tranche position in the IMF) stood at $244 billion as of end-October 2008.

The government's gross tax receipt in the first six months of the current year (April-September 2008) increased by 25.3 per cent over the corresponding period of the last year. Total expenditure grew by 23.6 per cent (after netting the onetime expenditure of Rs35,531 crore for the acquisition of RBI's stake in SBI) and plan expenditure grew 25 per cent.

After similar adjustment for the acquisition of RBI's stake in SBI, the non-plan expenditure grew 23 per cent and capital expenditure grew 11.1 per cent over the corresponding period of the last year.

The fiscal deficit during the first six months of the current year was higher as compared to the corresponding period of last year, but well within the target set in 2008-09 budget. However, revenue deficit was higher both as compared to corresponding period of last year and the target set in the 2008-09 budget, it said.

India has a relatively high share of services in GDP than many other emerging economies and developing countries. Historically, across countries, services tend to be less affected by cyclical downturns than manufacturing. This factor is likely to moderate the negative effect on overall GDP growth, the review said.

Also, it expects the five years of nearly 4 per cent agriculture growth followed by a projected 2.5 to 3 per cent growth and a scaling up of the NREGA programme to strengthen rural income and consumption levels.

India also has a high domestic savings rate, on a par with other high growth Asian economies.

In fact, the gross domestic saving rate has exceeded the gross domestic investment rate over the last five years, the review noted.

The saving rate of 36 per cent in 2007-08 was sufficient to maintain a growth rate of 9 per cent, it added.

The review also takes into account the ambitious infrastructure investment through the public-private partnership programme for the Eleventh Plan period, that would partially offset the effects of a slowdown in corporate investment in manufacturing.

This, however, would call for a pro-active monetary policy and the tight monetary policy during H1 2008-90 is giving way  to a considerable easing of monetary policy over the next 6 to 12 months to offset the global increase in demand for money that is being transmitted to India.

''Available data for H1 2008-09 suggests that the investment rates may have increased by about 1 per cent over H1 2007-08. This means that the investment rate for the fiscal 2008-09 may not be very different from that in 2007-08,'' the review said.

In the face of global slowdown and a moderation in private investment demand, accelerating the pending policy reforms is the answer to flagging business sentiments and brining the economy back to the 8.5 to 9 per cent growth path, the review noted.