Expect FY09 GDP growth to come in at 9.5%: CMIE

Mahesh Vyas, MD and CEO, Centre for Monitoring Indian Economy, or CMIE, expects inflation numbers to start coming down somewhere around September to begin with, and more decisively around October and November. "Nothing structurally suggests that inflation should remain high. Capacity will come onstream which may ease supply and prices."

He estimates GDP at 9.5%, "The economy is still very good and industrial growth is also very strong.

Excerpts from CNBC-TV18's exclusive interview with Mahesh Vyas:

Q: Where are inflation numbers headed and by when do you expect to see a cool off?

A: The numbers have been high longer than we had expected. We had expected some cooling off to begin already. Globally and in India, inflation has continued to remain very high. We expect inflation numbers to start coming down somewhere around September to begin with, and more decisively around October and November.

Q: How much can we scale back these inflation targets to, because some people say that markets like ours will have to live with higher inflation levels and not that 5-5.5% range?

A: An inflation number of 5-5.5% this year is certainly not possible. We will be revising our own forecast and that will happen in the middle of next week. This year, inflation will remain high. There is nothing structurally in the economy that suggests that inflation should remain higher thereafter. Inflation in India is high besides international reasons. Domestic capacities have not caught up with demand as yet. While demand is high, capacity is taking little longer. We see a lot of new capacities coming up in the middle of this year and that should help to ease supply and reducing inflation.

Q: Now, it seems to be veering close to 7%, if not lower. What is the target at CMIE?

A: We still maintain our growth numbers at 9.5%. We don't believe the number should be any lower than that. We have done detailed calculations factoring in higher inflation and slightly higher interest rates. The economy seems to be doing quite well and there is no reason why the number should be lower than 9.5%.

Our growth numbers for agriculture and services is a tad lower than what the average in the past two years has been. We are very bullish on the industrial sector though.

Q: Rates have been moving higher. Are you not concerned that some of that capacity constraint might actually linger on for longer and capacity expansion might be put on hold because of the liquidity pinch a lot of corporates are feeling now?

A: No. I do not see that to be the problem. For instance, the cement industry is seeing high prices, but there are capacity constraints. So, what do companies do? They will obviously accelerate the process of capacity creation, so that it is able to capitalize on high prices. It is a similar story for many other industries. I see no reason why capacities should be held back as demand is still very good.