India expects growth to slow to 8.7 pct in 2007/08

By Surojit Gupta

NEW DELHI (Reuters) - India expects its economy to expand 8.7 percent in fiscal 2007/08, slower than the previous year as higher interest rates dent consumer demand, and analysts expect growth to cruise at a similar speed next year.

While still strong, Asia's third-largest economy has lost altitude from the heady 9.6 percent expansion seen in 2006/07 and 8.7 percent would be the slowest growth in three years.

But Reserve Bank of India (RBI) chief said Thursday's official estimate would not alter the RBI's wait-and-see approach as the figure was broadly in line with its forecast of 8.5 percent for the fiscal year that ends on March 31.

Finance Minister Palaniappan Chidambaram said he was disappointed with the gross domestic product (GDP) reading and hoped growth would be close to 9 percent.

But analysts have been looking for it to moderate from its fastest pace in 18 years in 2006/07, with a Reuters poll forecasting expansion of 8.7 percent.

"Clearly moderation has set in, essentially driven by industrial moderation," said Shubhada Rao, chief economist with Yes Bank.

"Going forward in (fiscal year 2008/09) we expect growth to maintain 8.5 percent levels, led by infrastructure spending."

Financial markets were cool to the estimate, the first for this fiscal year, with the partially convertible rupee ending at 39.5350/5450 per dollar, from about 39.49/50 ahead of the release of the data.