I am disappointed with the numbers: C Rangarajan

Interview with Chairman, PMEAC

The Prime Minister’s Economic Advisory Council chairman C Rangarajan expects the final economic growth to be better than the advance estimates for this financial year. In an interview with Dilasha Seth, he says investments would pick up and inflation would fall in the next financial year, providing the Reserve Bank of India (RBI) the room to cut rates. He, however, does not see much scope for reining in the fiscal deficit in the remaining three months of this financial year. Edited excerpts:

Economic growth this financial year is calculated at just 6.9 per cent, very close to that in the crisis period of 2008-09. Do you expect a revision in this when the final numbers are out?
I am disappointed with the numbers. However, I have a feeling that when the numbers are revised, growth would be slightly higher. Agriculture growth would be higher than 2.5 per cent and manufacturing growth would also be better than 3.9 per cent, as the advance estimates are based on the low numbers in the first eight months. I expect GDP (gross domestic product) for 2011-12 to be between seven and 7.2 per cent.

The gross fixed capital formation, a proxy for investment, is estimated to fall to 11.95 per cent this financial year from 14.18 per cent in the previous one. Has RBI’s tight monetary stance killed investments?
The gross fixed capital formation rate has been lower than last year’s. But investments may pick up in the next financial year, as inflation is coming down, giving room to RBI to go for monetary easing. I expect capacity creation in the form of power, roads and infrastructure in the next year, as investments would pick up.

Nominal GDP is estimated to come down this financial year, from the projected Rs 8.98 lakh crore to Rs 8.91 lakh crore. This would magnify fiscal deficit as a proportion of GDP. How do you see the fiscal deficit in 2011-12?
The deficit is going to be high. The effort should be to keep the excess —over the Budget estimate — as low as possible. I cannot give a number for the deficit. But in three months (January-March), I see some pick-up in revenue, as manufacturing increases. However, the anticipated expenditure may not come down. Overall, I feel there is little scope for controlling the deficit in 2011-12.