New York: Falling rupee and high inflation would make it difficult for India to achieve 7.5 percent economic growth during the current financial year, Planning Commission Deputy Chairman Montek Singh Ahluwalia has said.
"The Finance Ministry has said they are hoping for a 7.5 percent growth this year. That is going to be tough but not impossible," Ahluwalia said.
He said while the last quarter did not show robustness, it remains to be seen how growth in the first quarter of the current fiscal will fare.
"It is going to be a slow transition," he said, adding that in India "we need to get out of a what looks like a decelerating growth phase.. And move to the growth path."
Economic worries over the past few months like rupee depreciation, high inflation and current account deficit are not helping India, which has been trying to get back on the pre-global crisis growth rates of 8-9 percent.
The rupee has depreciated by 11 percent against dollar since March. At the same time, inflation in April rose to 7.23 percent against 6.89 percent a month ago.
The global financial crisis of 2008 had pulled down India's growth rate to 6.7 percent in 2008-09. India has projected a growth rate of 7.6 percent in 2012-13, up from 6.9 percent recorded in the previous fiscal.
On whether the government would be willing to take tough decisions to put its economy on the path of high growth, Ahluwalia said, "I would certainly hope so. Certainly all the advice that we would be giving (to the government) is that India has tremendous opportunity to look good and to attract investment in a world which is very uncertain and we should not miss that opportunity."
He underlined need for restoration of fiscal credibility, action on the underprised petroleum products and taking care of implementation bottlenecks in infrastructure projects as being measures that should be very high on the government's agenda.
"Even if a little block is removed, it will create a revival of confidence that the country is on the right track," he added.
Ahluwalia said the view in the Planning Commission on fuel subsidies is very clear that "fuel prices just have to be adjusted.
"It is obvious from a technical and economic point of view, the case is absolutely overwhelming. In practice, political realities also have to be taken into account and governments very often have to decide when they want to do it. There is absolutely no doubt in my mind we just have to raise fuel prices," he said.
Ahluwalia said people must be educated on the importance of raising fuel prices.
In the case of petroleum, 80 percent of the fuel is imported "so not to charge for the price which you are being made to pay is basically bankrupting the petroleum sector. Either that or the budget has to bear a huge burden of subsidy and neither of those is sensible."
On concerns over India's high current account deficit, Ahluwalia said the size of the CAD is higher than what India is normally comfortable with.
"A three percent is a little on higher side and I will be a lot more comfortable with two and a half percent. But if for a couple of years, you have to do three percent mainly because oil prices until very recently were fairly high.
"I do not think that is a disastrous situation provided you can attract FDI and long-term capital flows," he said.
"The trouble is when you have a lot of global uncertainty, all these things become uncertain. So, you get pressure on the rupee," he added.
Ahluwalia noted that uncertainties in Europe have resulted in a very volatile international situation, one that has not been seen before and in which developing countries are being hit in different ways.
"The rupee has appreciated at certain times, this time it has depreciated," he said on the depreciation of the Indian currency which touched all time low of over 54 against dollar last week.
Noting that India does not follow a policy that anchors the rupee, Ahluwalia said the whole assumption is that market forces will be allowed to work, but the government will step in when it thinks the exchange rate has overshot.
He said the RBI, which has a lot of "ammunition" that it can use, has so far done the "right thing" in the way it has managed the currency fluctuation.
"I would hope that the rupee would not see any large depreciations or jumps. I would not particularly say that I am keen for it to appreciate either. Let the market push it one way or the other and as long as those movements are small I do not think there is too much to worry about."
Ahluwalia also stressed that inflation should be kept under tighter control.
"Inflation at seven percent is too high. Ideally, we would want inflation to be stabilised round 5-6 percent, so I think we need to bring inflation down a little more. What is going to do that to a large extent also depends on the supply side. It is not just a demand side factor," he added.
He stressed that the real issue is a "quick return" to certainty in the financial markets in general, particularly in the context of Europe.
The "real danger" in the European case is not a slow growth, but since the financial uncertainties are not being properly managed, there is real risk of "financial disruption" which could have a spill over effects internationally.
First Published: Sunday, May 20, 2012, 12:10