Any attempt to push growth beyond 9.5 per cent in the 12th Plan period that begins next year may lead to higher inflationary pressures and current account deficit woes, says Chairman of the Economic Advisory Council to the Prime Minister, C Rangarajan.
“During the 12th Plan period, India can comfortably grow between 9 per cent and 9.5 per cent. Pushing the economy beyond that level will result in higher inflationary pressures and a balance of payments situation,” Rangarajan said, while delivering a lecture at the College of Defence Management here today.
He added that ratios of savings and investments, which are at 36 per cent and 38 per cent, respectively, to the gross domestic product (GDP), should help the economy grow at 9 per cent. However, the government needs to keep in mind the short-term problems of controlling inflation, managing a reasonable level of current account deficit, besides achieving fiscal consolidation while meeting the growth targets.
Apart from containing inflationary pressures, a 4 per cent growth in agriculture and higher than the overall economic growth in power and infrastructure sectors also form a necessary condition for sustaining growth in the next Plan period, according to him.
Growth between 8 and 8.5%
For the current year, he said GDP would grow between 8 per cent and 8.5 per cent, though much depended on how the monsoon would pan out in the days to come. In any case, growth would not be below 8 per cent, he said.
While expressing confidence that revenue targets would be achieved, Rangarajan said there were greater concerns on the expenditure side.
On rate hike
On whether the Reserve Bank of India would further increase the rates in the near future, Rangarajan said it was difficult to say anything. “Food price inflation will come down in the next few months as the agriculture produce is coming into the market. It has already shown a significant decline at 7.7 per cent, which is still higher. I expect it to come down to 6.5 per cent by March 2012.”
Poverty had been on the decline even though different methodologies showed different percentages of population currently under poverty, he said. Decline in migrant labourers, rise in rural wages, non-availability of domestic helps among others suggest that poverty has been coming down for various reasons.