Mumbai: India's economic growth will moderate this year to 7.6 per cent in 2008, lower than the government's own conservative estimate of 7.9 per cent, according to a report of  the United Nations Conference on Trade and Development (Unctad).

The Unctad report said world output will grow by an average 3 per cent in 2008, about one percentage point less than in 2007, as GDP growth in developed countries hover around 1.5 per cent.

In the short term, growth in the developing world could exceed 6 per cent, as a result of relatively stable dynamics of domestic demand in a number of large developing economies, the report said.
 
Unctad's GDP projection is broadly in line with forecasts by Indian agencies like the Reserve Bank of India and the Prime Minister's Economic Advisory Council, which have projected a growth rate of 7.9 per cent and 7.7 per cent respectively in 2008-09, down from the 9 per cent recorded last year.

Releasing the Unctad report today, Nagesh Kumar, director general, research and information system on developing countries, said the Indian economy was expected to grow by at least 8 per cent in 2008-09.

''We do not see a major sluggishness in the economy. Moreover, the pay commission award will also add to the GDP growth. This will improve demand. In 1996, when the last government pay revision was announced, GDP growth increased by at least one percentage point,'' Kumar pointed out.

The Unctad report also blamed speculation as one of the key reasons for increase in commodity prices across the world.

''Although there is no conclusive evidence of the extent to which speculation is contributing to commodity prices so far, there can be little doubt that it has significantly amplified price movements originally caused by changes in market fundamentals,'' the report said.

According to Unctad, the recent spike in commodity prices and the subprime crisis in United States, which were seen at the same time was more than a mere coincidence. ''Speculators looking for high returns in the short run may well have sensed strains arising in world food markets and readjusted their portfolios to contain a greater share of commodity futures contracts,'' the report adds.

The report found that global commodity prices have risen by over 113 per cent between 2002 and 2007. While crude oil prices increased 185 per cent in the period, food items became expensive by 65 per cent, vegetable oil prices rose 93 per cent and mineral ores by 261 per cent.

Unctad said that supply and demand shocks, which triggered the price explosions, varied from commodity to commodity. Increasing income growth in fast growing developing countries has also been pointed out as a reason for increase in prices of food items.

''As standard of living in these countries has been improving, consumers have not only been demanding more food but are also changing their dietary habits, leading to increased demand for livestock and consequently animal feed,'' the report said.

The sub-prime crisis has spread beyond the United States, causing a squeeze in liquidity and credit. Abrupt exchange-rate adjustments and shifts in current-account balances could aggravate the situation, it said.

Speculation has played a major role in recent commodity price swings. Doubts about the direction of monetary policy in some major developed countries.

Current turmoil and the threat of speculative swings point to the need for better global financial governance and a coordinated macroeconomic policy response to global imbalances, the report pointed out.

For a large number of developing countries, the outlook depends mainly on future trends in primary commodity prices, which remain highly vulnerable to fluctuations, it said.

Commodity-exporting developing countries have been benefiting from the commodity price boom since 2003. This is mainly the result of increasing demand in several fast-growing developing economies; supply constraints; closer links with energy and financial markets; and dollar depreciation.

Prices for the leading commodity - oil - reached record levels in nominal and real terms in the second quarter of 2008. But this boom could come to a halt due to cyclical factors, the withdrawal of speculative funds and delayed supply responses.

Greater diversification and industrialisation is the best long-term strategy for reducing vulnerability.

In some countries, progress towards the MDGs has been jeopardised by the dramatic social and humanitarian consequences of the surge in food prices. This is explained not only by underlying consumption and production trends but also by such factors as low stocks, speculation, weather, biofuel demand, higher production costs, dollar depreciation, policy measures and neglect of agriculture in developing countries.

On policy response to infation, the report said a one-off rise in the consumer price index due to high commodity prices cannot be the same as inflation.

The risk of galloping inflation is frequently overestimated: unit labour costs have increased very little in most countries. Divergent monetary policies could invite renewed speculation in foreign exchange markets. Monetary policy tightening would exacerbate the global slowdown.

Alternative measures for a non-recessionary correction of global imbalances could include stronger stimulation of domestic spending and imports in major surplus economies, it said.

New measures to achieve greater commodity price stability, including stricter regulatory measures to contain speculation, which could also help stabilize the world economy.