India Inc wants monetary, fiscal policies to continue

Industry bodies were enthused by the more than anticipated GDP growth of 7.9 per cent in the second quarter (Q2) of the current financial year, 2009-10, along with the increase in consumption and investment. However, they are apprehensive about the sustainability of growth.

Contraction is expected in the agricultural growth rate and in that of manufacturing in the third and the fourth quarters. Major busness chambers said there’s a need for the government to continue with the existing monetary and fiscal policies to sustain the process of economic recovery. “The latest quarterly GDP figures are a further confirmation of the Indian economy recovering. It is, therefore, important that we do not do anything to disrupt this process of recovery. At this rate, we feel we can look to a near-seven per cent growth for the whole year,” said Harshpati Singhania, president, Federation of Indian Chambers of Commerce and Industry (Ficci).

The Confederation of Indian Industry (CII) also said the high numbers indicate government policy measures have been successful in reversing the impact of the global slowdown. CII accorded the growth in GDP to the sharp increase of over 25 per cent in government consumption spending during the second quarter. And said GDP figures might moderate, as the impact of the increase in government spending fades away over the next two quarters. “It would be important for the RBI (Reserve Bank) to maintain policy rates at the current levels to prevent the growth momentum from slackening,” said Chandrajit Banerji, director-general of CII.

The industry chambers further expressed optimism that the recovery will be sustainable, as investment and consumption are showing an upswing, and with policy guidance a growth rate of seven per cent can be achieved in the current financial year.

Satish Bagrodia, president of the PHD Chamber of Commerce and Industry said the current trend shows the green shoots of economic recovery are firmly taking root, with strong domestic demand emerging as a key driver of economic growth. However, he cautioned that fundamental imbalances in the world economy have not disappeared, as demonstrated by the debt crisis in Dubai.