India's GDP growth is likely to decline to 7-7.25 per cent this fiscal from

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8.4 per cent in 2010-11 due to slackening industrial output and slowdown in global economy, PMEAC chairman C Rangarajan said here today.

He also said government will not be able to stick to the fiscal deficit target of 4.6 per cent of GDP this fiscal.

"The overall growth rate in industry will be well below the initial expectations. The world economic situation is also not very encouraging. Under these circumstances, the growth rate during the current year may be between 7 per cent and 7.25 per cent," Rangarajan said at an Assocham meet.

Initially, the Prime Minister's Economic Advisory Council (PMEAC) had projected the GDP during 2011-12 at 8.2 per cent.

Rangarajan, however, expressed hope the GDP growth "may turn out to be better" in 2012-13 due to likely decline in inflation, improvement in infrastructure and "greater clarity" on issues like land acquisition and environment.

He further said the broad macro economic parameters relating to savings and investment are conducive to achieving a growth rate of 8 to 9 per cent in a sustained manner.

He said for a sustained high growth, inflation must be tamed and fiscal deficit contained.

"Inflation continues to remain an area of concern in the current fiscal...We must use all of our policy instruments... to bring down current inflation and re-anchor inflationary expectations to the 5 per cent comfort zone," he said.

As the inflation showed signs of moderation in December, he said "perhaps, the headline inflation will come below 7 per cent by March 2012".

Rangarajan further said: "We, however have to bear in mind that the rationalisation process in the pricing of petroleum products is still to be completed and, as and when this happens, it will impact overall inflation".

On the fiscal deficit target of 4.6 per cent for this fiscal, he said "perhaps this is difficult to achieve," adding "to gain credibility, it is important that fiscal deficit remains close to this level".

Over the medium term, the government should draw up an appropriate road map to reach the FRBM (Fiscal Responsibility and Budget Management) target of three per cent of GDP, he said.

"We must focus particularly on reducing the overall level of subsidies as a proportion of GDP," Rangarajan added.

The industrial output measured on IIP has been below 5 per cent in July, August and September and in the following month contracted by 5.1 per cent. While there was an uptick in November IIP, the data for December will be released in the second month of February