12th Plan could yield close to 8% growth rate: C Rangarajan

Interview with Chairman, PMEAC

Prime Minister’s Economic Advisory Council (PMEAC) chairman C Rangarajan firmly believes that the current investment rate of 35.8% should give economic growth of 7.5-8%.  He tells Indivjal Dhasmana that growth has been coming down because of stalled projects. He does not rule out the possibility of economic growth reverting to 8-9% in the last three years of the 12th plan (2014-15 to 2016-17). Excerpts:

Where would you have pegged economic growth in 2012-13 against estimated 5%, had incremental-capital output ratio (ICOR) not risen from historical level of 4:1%?
The current investment rate with ICOR of 4:1 should yield growth close to eight%. Because of the fact that capital was not fully utilized, growth came down. Say if power projects are stalled because fuel is not available, means that capital is not fully utilized. Because of this ICOR has risen.

In the current financial year, PMEAC pegged economic growth at 6.4%. This means that eight% growth is still not coming. Does it mean that capital will remain unutilized in 2013-14 as well?

If ICOR has risen,  it has to be slowly brought down. Stalled projects if cleared will not give you full result in a year. It takes time.

For the first two years, the growth will be way below the Planning Commission’s estimates for average annual growth at 8% for the 12th plan (2012-13 to 2016-17). Do you see the growth to be significantly lower than the Commission’s target for the 12th plan period?

The last three years of the plan could yield 8-9% growth rate. So, full period could yield close to eight% average growth rate. In the concluding year, the growth could be even higher. The terminal year could yield the growth rate of nine%.

You projected the current account deficit to be 5.1% of GDP for 2012-13 and 4.7% for 2013-14. This is way above 2.5%, which you recently said should be a desirable level. When do you think we would be seeing that level of CAD?
Wait for a few years. Like in fiscal consolidation plan, fiscal deficit would be brought down in a period of five years, similarly reducing CAD would also be over a period of time.

You forecast the wholesale-price index-based inflation to come down at an average rate of 6% in the current financial year from 7.3% in the previous fiscal. When one could expect inflation to fall to comfortable level?
Right now, we see inflation at average 6% in 2013-14. It is difficult to forecast monsoon. The comfortable level is 4-5%. Our efforts should be to bring it down to 5%.