Finance Minister Pranab Mukherjee on Thursday said the economy would expand by 7.75 per cent during the current financial year despite the adverse impact of drought and floods on agriculture.

“In case of negative growth in agriculture due to bad monsoon and floods, it will be adequately compensated by manufacturing and services sectors in the third quarter (October—December),” he said after inaugurating the Industrial Trade Fair here.

Due to drought and floods, agriculture and allied sector growth rate declined to 0.9 per cent in the second quarter (July—September), from 2.7 per cent during the corresponding period last year.

However, despite poor showing by the farm sector, the economy in the second quarter grew by 7.9 per cent, more than anticipated by analysts or think tanks. The upbeat growth in the second quarter is significant in the back drop of 2008-09 growth of 6.7 per cent, down from 9 per cent in the previous fiscal.

Referring to rising government borrowings in the current fiscal, Mr. Mukherjee said, there was enough liquidity in the system and the private sector would not suffer from credit crunch.

“Inflows from external sources like FIIs and FDI are increasing. These factors generate confidence and unless any untoward incident takes place GDP growth will be 7.75 per cent,” Mr. Mukherjee said.

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