Farm growth can bring down inflation: Rangarajan

The Prime Minister's economic panel today said high food inflation reflects lacklustre performance of the farm sector, which together with infrastructure, remains the main bottlenecks to higher growth.

"High food prices show how important is agriculture to us, even though it contributes only 16-17 per cent to the GDP now," Prime Minister's Economic Advisory Council Chairman C Rangarajan told reporters at an event organised by the Skoch Foundation here.

Agriculture needs to grow 4 per cent annually, he said, adding the lagging farm and infrastructure sectors are the two bottlenecks to higher overall growth.

Food inflation remained at enhanced level of 16.12 per cent for the week ended June 5, despite some moderation.

Agriculture grew at paltry 0.2 per cent last fiscal as weak monsoon impacted farm production, which pulled down economic growth to 7.4 per cent. This year, the economy is projected to grow by 8.5 per cent on the back of likely sustained resurge in industrial sector and good monsoon.

Rangarajan also said GDP will grow by around 8.5 per cent in the current fiscal. The economy can comfortably grow at 9 per cent, provided savings rate is 36-37 per cent and the capital-output ratio sustains around 4 per cent, he said.

The former RBI governor further said the Centre's fiscal deficit can slightly moderate on the back of additional revenue collection from the recent 3G and broadband spectrum auctions. "Fiscal deficit can moderate a bit," Rangarajan said when asked if the additional revenue realised from the sale of radio waves can bring down the rising fiscal burden.

As per the budget estimate, fiscal deficit for 2010-11 has been pegged at 5.5 per cent of GDP or Rs 3.18 lakh crore.

While the 3G spectrum auctions brought Rs 67,719 crore in revenues to the Exchequer, while BWA auction got it a tad over Rs 38,000 crore. Against a combined estimate of Rs 35,000 crore, the spectrum auctions ensured an inflow of Rs 1,06,336 crore to the government coffers.

Economists say, this would alone cut fiscal deficit to 4.47 per cent during 2010-11. Global investment banker Barclays Capital had projected fiscal deficit to decline to 4.5 per cent this fiscal on the basis of the 3G auction results alone.

Earlier, Finance Minister Pranab Mukherjee had said revenue from the 3G spectrum auction would help in reducing the fiscal deficit.