India’s gross domestic product (GDP) will grow by 6.5 per cent this financial year, and would have done even better but for the drought, the Prime Minister’s Economic Advisory Council said on Wednesday.

The council, headed by former Reserve Bank of India (RBI) governor C. Rangarajan, pegged growth range for the country between 6.25 per cent and 6.75 per cent for the year ending March 31,
2010.

“Our best estimate is that the economy will grow by 6.5 per cent,” Rangarajan told reporters.

India’s GDP — which represents the aggregate of income of all individuals and economic entities — grew by 6.7 per cent in 2008-09. It rose by 6.1 per cent in the April-June quarter of this financial year, up from 5.8 per cent in the previous quarter.

But farm output, which the council said would fall by 2 per cent — the lowest in seven years — remained a big worry that could force the government to spend more on programmes such as the National Rural Employment Guarantee Scheme to ensure that a minimum income reached village households.

Although the share of agriculture and allied activities in the GDP has declined over the years to 17 per cent, good agricultural performance is critical not only because agriculture supports more than 700 million people but also to ensure stability in food prices.

“It (the government) needs to focus on the public distribution system to reach foodgrains to different markets and locations, so that price pressures are contained,” Rangarajan said.

Wholesale prices based inflation, which is hovering around 1 per cent, may firm up to 6 per cent by the end of the current fiscal year.

Both industrial and services output, the council said, would grow by 8.2 per cent.