6% GDP growth next fiscal; CAD to be at 2.5-2.7% this year: Montek

Says India, once it overcomes the current short-term problems can achieve an 8% growth

Planning Commission deputy chairman, Montek Singh Ahluwalia, on Wednesday said that the country’s gross domestic product (GDP) will expand by over 6% in the next financial year, which will primarily be triggered by the policies of the new government.

“I think the revival in the economic growth will be evident in the next six months. We can reasonably expect a very strong improvement in performance next year,” he said in his address at an event organised at the Indian School of Business (ISB) today.

Stating that he was expecting the second half of the current financial year to be better than the first half though there were no signs of a strong revival as yet, Ahluwalia said that the decline in the economy had bottomed out.

While reiterating that the Finance Minister had categorically said that he would not cross the 4.8% (fiscal deficit) of the GDP redline, Ahluwalia said he had no idea on what the final extent of the revenue shortfall was likely to be because, obviously, the growth was less than projected “Nevertheless, we have a lot of scope by savings on expenditure. I think, you are going to get 4.8%,” he added.

According to him the current account deficit (CAD) would be significantly below 3% this financial year. “In May-April of this year, people thought that's why the rupee came under pressure, which is true. That time, the Finance Minister said that it was going to be much better and I think he used the number like 3.7%. But the good news is it is going to be 2.5% to 2.7%,” Ahluwalia said.

Expressing confidence that the target that the country can get to, once it overcomes the current short-term problems, is an 8% growth, he said India could easily sustain the target with an investment rate of something like 36-37%.

“With a 2.5% CAD, the domestic savings will be 34.5%. These are not difficult targets for us to achieve,” he said, adding that he didn't regard the present position of the Rupee as a bad thing for the Indian economy.

“At the earlier exchange rate that prevailed, we had become uncompetitive. At the present Rs 62-63, we are quite competitive. I think, we can finance the 2.5% deficit with the available funds,” he added.