India to grow at about 7% this fiscal year, says PM

New Delhi: Prime Minister Manmohan Singh said on Sunday that the country's economy would likely withstand an uncertain external environment to grow about 7% this fiscal year, lower than a revised forecast of about 7.5% growth issued by the government last month.

However, Singh said India's high domestic savings would help achieve a 9-10% growth rate in the medium-term.

The Indian economy is slowing on a combination of feeble growth in the US and Europe, a ratcheting up of interest rates to quash high inflation and a decision-making paralysis in government.

Growth at 6.9% in the quarter ending September was the weakest in more than two years, obliging the government to pare the forecast for the fiscal year to end-March 2012 to about 7.5% from 9% made in last year's budget.

"Despite an adverse international environment, the Indian economy is expected to grow by about 7% this financial year ending 31st March," Singh said in an address in Jaipur to a gathering of Indians living abroad, made available by his office.

"However, we hope to bring back the rhythm of our growth processes to sustain an annual growth rate of 9-10% in the medium-term. Our domestic savings rate, which currently stands at 33-35% of our GDP, will greatly facilitate the realisation of our growth objectives."

Singh also said the fight against high inflation was yielding results, leading to an improvement in the situation.

India's headline inflation has stayed above 9% for a year despite 13 rate hikes by the central bank since March 2010.

However, a rapid slowdown in food inflation in December has raised hopes of a cooling in overall inflation. The food price index fell an annual 3.36% in mid-December, the first drop in nearly six years.

Singh also announced a novel pension and life insurance scheme for overseas Indian workers that is expected to benefit more than 5 million workers, especially those in the Gulf region, and help them save for their return, resettlement and old age.

Singh also sent a message of comfort to the diaspora saying that his government is "acutely conscious" of the safety and security of Indians living abroad, particularly in Gulf and West Asia.

"I am happy to inform you that the government has decided to introduce and sponsor a new Pension and Life Insurance Fund for overseas Indian workers. The scheme will encourage, enable and assist overseas workers to voluntarily save for their return and resettlement and old age," he told more than 1,900 delegates from 60 countries.

The scheme, which was cleared by the Cabinet last week, will also provide a low-cost life insurance cover against natural death, Singh said, adding that this fulfils a "long pending demand of our workers abroad".

Under the scheme, the government will co-contribute Rs1,000 per annum for all subscribers who contribute between Rs1,000 and Rs12,000 per year. Women overseas workers will enjoy a special additional co-contribution of Rs1000 a year. Reuters