UPDATE 1-India economy to grow 6-7 pct in FY10 - finmin

Sat Nov 14, 2009 9:35am EST

* Finmin says efforts on to accelerate growth to 9 pct

* October WPI inflation up 1.34 pct

* Analysts expect monetary tightening next year

(Updates with inflation data, details)

NEW DELHI, Nov 14 (Reuters) - The Indian economy could expand between 6 and 7 percent in the year to March 2010 despite a bad monsoon, the finance minister said on Saturday as data showed accelerating inflation in October.

Speaking in the Sri Lankan capital Colombo, Pranab Mukherjee said there were risks to an early global economic recovery and signs asset price bubbles were re-emerging.

"Overall, the economic growth is expected to be in the range of 6-7 per cent in 2009/10, despite the setback due to a poor monsoon," Mukherjee said. The remarks were made available via a government email sent to journalists in New Delhi.

The growth rate in Asia's third largest economy fell to 5.8 percent in each of the December and March quarters as the global slowdown trimmed factory output and slashed exports.

The Indian economy grew 6.7 percent in 2008/09 (April-March), slowing from 9 percent or more in the previous three years.

"The effort now is to bring the economy back on the growth path of 9 percent per annum," Mukherjee said without giving a time frame.

PRICE PRESSURES

The government had cut duties twice since December and stepped up public spending, while the central bank slashed its policy interest rate by 425 basis points between October and April, and pumped in extra cash to stimulate a slowing economy.

Just as the economy was turning a corner in the June quarter, the worst dry spell in nearly four decades was followed by floods which trimmed farm output and cast a shadow over a faster recovery.

It also boosted food prices pushing up the overall headline inflation to 1.34 percent by October from a year earlier, compared with 0.5 percent rise in the previous month. Click [ID:nDEL235105] for a story on inflation earlier on Saturday.

Faster factory output and accelerating inflation have added to the debate over when the government and central bank should pull back from its aggressive policies to drive growth.

N.R. Bhanumurthy, an economist at National Institute of Public Finance and Policy said he expects inflation at 7.8 percent by end of March 2010, higher than a central bank forecast of 6.5 percent.

"Monetary tightening will be conditional on robust recovery especially in industrial output. If there is a strong recovery and inflation is also high, monetary tightening could happen between end of January and April," he said.

(Reporting by Rajkumar Ray; Editing by Keiron Henderson)

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