New Delhi, Aug. 11: Prime Minister Manmohan Singh expects the economy to turn around and outperform lower forecasts by rating agencies such as Moody's.
"We should not draw unwarranted conclusions. This year we will do still better than 6.5 per cent (GDP) growth of last year," the Prime Minister said on the sidelines of the swearing-in ceremony of vice-president Hamid Ansari at Rashtrapati Bhawan.
Singh reasoned that "the fundamentals of Indian economy are strong. Investments and savings are among the highest in the world".
However, several independent research bodies, including Moody's Analytics, have predicted India would slow down to grow at below 6 per cent. The government has forecast a GDP growth of 7.5 per cent.
The government is considering higher rural spending, a sugar export tax and zero import duty to mitigate the impact of a drought following disappointing monsoon rains in recent weeks, which one of Singh's aides said could reduce GDP growth to 6 per cent this fiscal.
India's economic growth hit a nine-year low of 5.3 per cent in the last quarter of 2011-12, weighed down by a political logjam, high interest rates at home and an uncertain global economy.
Both industrial output and exports have fallen from year-ago levels in three out of the last four months.
A flagging economy has not only put the country's investment-grade credit rating in jeopardy, but is also seen undermining the support base of the ruling Congress party.
Factory output for the month of June contracted by 1.8 per cent, raising concerns in Delhi's policy circles. Officials said the government was brushing up on plans to set up industrial clusters and national manufacturing zones, which could help boost industry, coupled with a policy for acquiring greater energy resources abroad.
Telecom and electricity equipment are seen as two of the critical areas where manufacturing competitiveness has to be built to stop a drain of forex which goes towards cheap imports.
Other areas identified include capital goods such as machine tools, heavy electronic equipment, heavy transport and earth moving and mining equipment.