The economic survey prepared by the finance ministry, released ahead of Monday's budget announcement for the fiscal year ending in March 2010, said inflation is no longer a worry and called for an urgent return to the targeted fiscal deficit of 3 percent.

KEY POINTS:
- Economy could grow around 7 percent in 2009/10 if U.S. economy bottoms by Sept.
- Economy could return to 8.5-9 percent growth in medium term if reforms are pursued.
- Fiscal deficit target must be set at 3 percent of GDP at the earliest.
- Interest rates remain high despite easing of monetary policy.
- Calibrated monetary policy approach needed for early return to high growth path.

MARKET REACTION:
- The partially convertible rupee was at 47.7850/7950 per dollar, little changed from 47.79/80 before the survey. It had closed at 47.88/90 on Wednesday.
- The yield on the most traded 2021 federal bond was steady at 7.19 percent, unchanged from before the survey. It had ended at 7.23 percent on Wednesday.
- The 30-share BSE index was up 0.48 percent, from 0.23 percent higher before the report.

BACKGROUND:
- The economy grew 6.7 percent in 2008/09, slower than 9 percent or more in the previous three years.
- Fiscal deficit surged to 6.2 percent of GDP in 2008/09 on higher spending and duty cuts to prime a slowing economy.
- India raised retail fuel prices by as much as 10 percent on Wednesday, the first increase this year, on higher global crude prices.
- Manufacturing activity in India slowed slightly in June but still expanded for a third straight month, on strong local demand. But exports fell for eight consecutive months in May.
- A policy adviser to the prime minister has said the WPI number could show an annual rise of 6 percent by March end, while the economy may expand 7 percent in 2009/10.
- India's monsoon rains this year are expected to be less than normal and weakest in last four years, prompting analysts to predict lower farm output and price rise in the months ahead.
- India's factory output unexpectedly rose in April, and analysts said it confirmed early signs of economic recovery and an end to the central bank's rate cutting cycle.
- In April, the central bank cut its key short-term lending and borrowing rates by 25 basis points to shore up faltering growth in the face of the global economic slowdown. It has cut the rate by 425 basis points since October.

(Source: Reuters)