Economy will stabilise in 6 months - Ahluwalia

By Manoj Kumar

NEW DELHI (Reuters) - India's economy is stabilising and will remain a favoured destination for foreign investors as normality returns to global markets, a senior government official said on Monday.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said there had been a pick-up in credit growth and foreign capital inflows were expected to rise in coming months, adding to signs the economy was finding a footing.

"I think in the next six months, you will see the evidence of stabilisation," Ahluwalia told reporters after a conference.

Earlier this month, the Planning Commission forecast economic growth of 6.3 percent for 2009/10. In a worst-case scenario, it said growth could fall to 5.5 percent if farm output was badly hit by the worst dry spell in nearly four decades.

Asia's third-largest economy grew 6.7 percent in 2008/09, slower than 9 percent or more expansion clocked in the previous three years.

Ahluwalia said the collapse of Lehman Brothers a year ago sparked serious concerns about stabilising the financial system, but noted the worst fears had not been realised.

"I think the capital flows into India will not be adversely affected. In fact, when (the global financial) system stabilises, I think people will recognise India remains one of the fastest-growing countries in the developing world," he said.

"I don't think we will have difficulty in getting the amount of capital that we want. It may not go to the level that we had in 2007 but that flow was more than we needed," he said.