India may grow by 6.75% this fiscal: PMEAC
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Last Updated: Wednesday, October 21, 2009, 19:54
New Delhi: Stressing that India has been able to weather the global financial crisis, the Prime Minister's Economic Advisory Council (PMEAC) on Wednesday said the country's economy may grow by 6.75 per cent this fiscal despite bad monsoon affecting farm sector output.

The PMEAC, in its Economic Outlook for 2009-10 submitted to Prime Minister Manmohan Singh, said India's GDP growth rate could range between 6.25 per cent and 6.75 per cent. On average, it could grow around 6.5 per cent.

Releasing the outlook, PMEAC Chairman C Rangarajan said the ongoing global financial crisis and the impact of drought on the country's farm output, forecast to post a negative growth of 2 per cent, are key factors impacting growth. The agricultural sector accounts for about 18 per cent of the GDP.

He, however, said, India was much better poised compared to some of the other countries in the backdrop of the crisis.

"On the whole, we must say the Indian economy has weathered the international financial crisis very well. It has been able to hold on to a rate of growth of economy which is perhaps the second fastest in the world," he told reporters.

India's economic growth slowed down to 6.7 per cent during 2008-09, from over 9 per cent recorded in the previous three years, on account of global financial meltdown.

The PMEAC further said inflation, which is hovering around one per cent, may firm up to 6 per cent by the end of the current fiscal.

Despite the expected rise in inflation in the near future, Rangarajan said the current monetary policy may have to continue till March-end next year to support the economy, which has slowed down due to the global financial ciris.

"The monetary policy has been accommodative in the past several months ... the stance will have to change, but will have to wait depending on the growth performance and inflationary pressures on the economy," he said.

Rangarajan, however, said rising inflation, mainly driven by increasing food prices, is a "disturbing element in the Indian economy". Food grain production has been estimated to be 223 million tonnes this year, a shortfall of 11 million tonnes from last year.

Stressing on the need to bring down the high fiscal deficit, which is projected to be 10.09 per cent, including that of states, he said the current level is not sustainable over a long period of time.

"In 2010-11, some effort will be made to bring it (fiscal deficit) down in a measured way and the process of fiscal consolidation will have to start from next year," Rangarajan said.

The Central fiscal deficit was 6.2 per cent in FY'09 and is projected to be 6.8 per cent of GDP in the current fiscal.

Fiscal consolidation to start next year: PMEAC

New Delhi: The Prime Minister's Economic Advisory Council today said the process to bring down the fiscal deficit from the current 6.8 per cent to a more sustainable level could start from next year.

"The magnitude of the deficit is a matter of concern," the PMEAC (Prime Minister's Economic Advisory Council) said in it's Economic Outlook for 2009-10, which predicts a consolidated fiscal deficit of 10.09 per cent for the Centre and the states together.

When some off-budget items are included, the deficit will be about 10.27 per cent of GDP this fiscal, it added.

"It is very clear that this level of fiscal deficit is not sustainable over a long period," PMEAC Chairman C Rangarajan told reporters here.

"Eventually, we will have to take the fiscal deficit to the level it has been contemplated in the FRBM Act," he said.

The Fiscal Responsibility and Budget Management Act, enacted in 2003 had envisaged cutting fiscal deficit by 0.3 percentage points every year to ultimately bring it to 3 per cent of GDP by 2008-09.

He said as the economy improves, it will be possible to bring down the fiscal deficit in a phased manner.

"In 2010-11, some efforts will be made to bring it down in a measured way and the process of fiscal consolidation will have to start from next year," he said.

Inflation may cross 6%: PMEAC

New Delhi: The Prime Minister's economic advisory panel today said inflation may cross the six per cent mark by the end of this fiscal and managing food prices will be the biggest challenge for policy makers in the short run.

The PM's Economic Advisory Council (PMEAC), headed by former RBI Governor C Rangarajan, also cautioned policy makers against inflation contagion from global developments due to rise in oil prices and any further setback to the financial world.

"In India, given the strength of inflationary pressures in the first half of 2009/10, due in part to the drought and expectations of lower supply, it is easy to envisage a situation in March 2010, where inflation is higher than 6 per cent," said the Economic Outlook for 2009-10 released by the council.

"Inflationary pressures on the food front will be a major policy concern in 2009/10. In the short term, managing inflationary risks, particularly food price inflation, is the biggest challenge to policy makers," it added.

The council said the weak monsoon rains and available acreage data suggest lower kharif output rendering the management of food inflation a severe challenge this fiscal.

"While the current weather conditions favour a strong rabi (winter) crop, the possibility of adverse weather conditions in rabi cannot be completely ruled out," it added.

Bureau Report

First Published: Wednesday, October 21, 2009, 19:54

Tag: IndiagrowthPMEAC
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