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UPDATE:India PM:To Take Steps To Exit Easy Fiscal Stance Next Year

(Updates with additional comments)

By Abhrajit Gangopadhyay and Subhadip Sircar

Of DOW JONES NEWSWIRES

NEW DELHI -(Dow Jones)- India will take appropriate steps next year to wind down its accommodative fiscal stance, and the country's economy is posed to grow over 7% next fiscal year, Prime Minister Manmohan Singh said Sunday.

"The performance in highly adverse circumstances indicates the resilience of our economy," Singh said at the India Economic Summit.

India's economy expanded 6.7% in the fiscal year that ended March 31, sharply lower than an average 8.8% growth in the previous four years. It is estimated to grow 6.5% this fiscal year, ending March 31, 2010.

The government has spent heavily through the past year to shield the economy from global financial shocks, cut factory levies and waived farm loans to stimulate demand in the economy.

The central bank has also cut its key repo rate by 425 basis points and reverse repo rate by 275 basis points since the onset of the global economic crisis to support the economy.

"In the current fiscal year we also felt the adverse impact of an inadequate monsoon and the resultant slowdown in agriculture," Singh said.

A late arrival of July-September monsoon rains, crucial for summer sown crops, has brought in the worst drought in 37 years and the government expects farm sector output this fiscal year to shrink 2.5% from year earlier.

Still "there are clearly signs of an upturn in the economy and with a normal monsoon next year we hope to achieve a growth rate over 7%," Singh said.

However a return to high growth rate hinges on a strong rebound in global demand though India's economy is primarily driven by local consumption.

"Our strategy therefore must aim at a high rate of growth on the strength of strong domestic demand," Singh said. "We wish to achieve this with a large investment in infrastructure."

India plans to spend $500 billion through March 2012 to fix its creaking infrastructure.

-By Abhrajit Gangopadhyay & Subhadip Sircar; Dow Jones Newswires; 91 22 61456113; djn.in@dowjones.com

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