NEW DELHI, Aug 16: India’s central bank governor Bimal Jalan said on Saturday the economy would see a high growth rate this fiscal year due to good monsoon rains and a strong industrial revival, among other factors.

The economy had done well despite a withering drought in the last financial year which ended in March, which was compounded by external factors including a global slowdown and the war in Iraq, Jalan said.

Last year’s drought in 14 states suppressed demand, pulling down industrial growth as well as overall economic growth, according to the 62-year-old banker who will soon leave the Reserve Bank of India after being governor for six years.

Despite this, management of the economy had been good last year, Jalan told the NDTV news channel, adding: “Our resilience to handle problems has improved. “Things are much more stable... much better after a crisis,” he said.

“We are dependent on rains. One wishes we were less dependent on the rains,” he added.

He did not give a specific growth rate, but last month he said India’s economic position was strong enough to see growth rates of 6.0 or 6.5 per cent in the medium term.

But Jalan warned that a high fiscal deficit was impeding economic growth.

“Fiscal deficit is a problem from the growth point of view. We are using a lot of domestic savings for current consumption and that is not desirable,” he said.

With marginal improvement in total receipts and containment of expenditure, the federal government’s fiscal deficit stood at 386 billion rupees (8 billion dollars) in the first quarter of this year.

A government report last week said the fiscal deficit was equivalent to 25 per cent of budget estimates as against the corresponding figure of 29 per cent the previous year.

forex reserves: India’s foreign exchange reserves nudged closer to $85 billion mark, buoyed by strong portfolio investments and trade remittances, but analysts said the inflows could dip due to the government’s plan to pre-pay external debt.

Data released by the Reserve Bank of India in its weekly statistical supplement on Saturday showed the reserves scaled a new high of $84.997 billion in the week ended August 8, up $297 million from a week earlier.

But a proposed prepayment of external debt and higher oil import bills could lead to outflows in the coming weeks, analysts said.

“Oil demand is expected to rise as the economy shifts into top gear,” said K. Harihar, head of treasury at Development Credit Bank.”

In the week ending August 8, India’s top listed software services exporter, Infosys Technologies Ltd, brought in $284 million raised from a sponsored secondary American Depositary Shares, which traders said boosted reserves.

But the surging reserves may also ebb as inflows from yield-hungry non-resident Indians (NRIs) are expected to slow down.

“The wholesale NRI-money chasing higher yields may taper off as the returns are relatively less attractive now, but the retail flow would sustain,” said Harihar.

Analysts said portfolio inflows into the country would sustain, as foreign funds bet on a recovery in the farm-dependent economy.—AFP/Reuters