Growth rate to revert to 9% soon; inflation area of concern: FM

Posted on    28 October 2010


Growth rate to revert to 9% soon; inflation area of concern: FM


Finance Minister Pranab Mukherjee exuded confidence that economy would shortly revert to 9 pc growth rate but identified rising prices as a major concern, although inflation has declined to 8.6 pc from double digits in June.


For India, the ideal inflation rate would be 4-5 percent although it may be difficult to attain, the minister said while inaugurating the Economic Editors' Conference in New Delhi on Tuesday.

"I will try to bring it (inflation) down through whatever mechanism we would be ideal if we have 4-5 per cent, but may be difficult. But I do feel that annualised inflation rate would be around six per cent," Mukherjee said.



Inflation, which has emerged as a big political issue, was 8.6 percent in September. However, food inflation was 15.53 percent for the week ending 9th October.

Attributing inflation mainly to rising food prices, Mukherjee said, "In terms of consumer price indices (retail prices), inflation in the three major groups -- industrial workers, agricultural labour and rural labour -- have come down to single digit level."

As regards economic growth, Mukherjee said he hoped it would be 8.5 percent (plus/minuus 0.25 percent) during 2009-10, rising further to 9 percent in short term.

"It is reasonable to expect that the economy will go back to robust growth path of around 9 per cent average that it was before the global crisis slowed it down", Mukherjee said.

Having achieved over 9 percent rate for the three consecutive years, the economic growth dipped to 6.7 percent during 2008-09, mainly on account of the global financial meltdown.



However, it picked up to 7.4 percent in 2009-10 and recorded 8.8 percent in first quarter of the current fiscal.

"There has been a revival in investment and private consumption demand, though the recovery is yet to attain the pre-2008 momentum...favourable market conditions with improvement in capital flows and business sentiments are also encouraging", Mukherjee said.



He added that the exports were picking up, manufacturing sector is showing buoyancy and corporate earnings and profit margins have picked up substantially.



Prime Minister Manmohan Singh too had said, in Tokyo this week that the Indian economy will revert to high growth path of nine per cent from next fiscal and even achieve double digit expansion in coming years.



"It is my expectation that we will return to a 9 per cent growth path in 2011-12. I am confident that the strong fundamentals of the Indian economy will enable us to achieve our objective of double digit in the coming years," Singh had said.



Mukherjee said that despite "continued concerns on inflation" the macroeconomic environment, both domestic and on the external front, was far more comforting at present than the last year.



Referring to fiscal issues, the Minister said, the government would continue to gradually withdraw the stimulus that was provided by the government to help the economy combat the impact of the global financial meltdown of 2008.



"It is our intention to have a gradual and sequenced exit from stimulus, keeping in focus long-term fiscal sustainability concerns", he said, adding the process would be in line with the medium term fiscal strategy and also the recommendations of the Thirteenth Finance Commission.



Since September 2008, the government had provided stimulus totaling around 3 percent of the GDP to the industry, to stimulate economy and generate demand. These measures mainly included tax reliefs and stepping up public expenditure.



Both the government and the Reserve Bank have been gradually exiting the stimulus to ultimately revert to the pre-crisis fiscal and monetary policies.



Besides other factors, the Minister said that timely impact of various fiscal and monetary policy measures have contributed to the growth.



"The clear signals of economic recovery necessitated a partial roll back of the fiscal stimulus measures, which I duly reflected in the budget for 2010-11", he said.



The economic recovery, he added, "is broad-based with growth improving in all the three sectors -- industry, services and agriculture...we should look to hit the 9 per cent plus growth path in the near future."



The Minister further said that partial restoration of the tax cuts, expenditure compression, revenue from 3G auction and disinvestment would help the government in meeting the 2010-11 fiscal deficit target of 5.5 percent, down from 6.7 percent a year ago.



Referring to high capital inflows, Mukherjee said, "(they) ... have put pressure on the rupee, resulting in its appreciation in the last few months. This has implications for our exports.



"We have faced similar situation in the past and have overcome it without taking recourse to some of the more stringent policy measures," he added.



Responding to criticism that reforms move at slow pace in India, Mukherjee said, "(they) reflect the democratic sanction process; but nevertheless sure, as it has larger backing...Indian economy will take its rightful place in the global economic order in terms of not only macroeconomic aggregates, but also in terms of human development indices."


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