We may not be able to get growth rate of 6.5%: C Rangarajan

Interview with Chairman, PMEAC

In its Economic Outlook for 2012-13, released in August this year, the Prime Minister’s Economic Advisory Council (PMEAC) had pegged India's economic growth at 6.7 per cent against 6.5 per cent in 2011-12. However, now, Chairman C Rangarajan tells Dilasha Seth that the growth will touch just 6 per cent in 2012-13. He also describes the Reserve Bank of India (RBI)’s monetary stance as cautious, as headline inflation is high. Edited excerpts:

In the second-quarter monetary policy review today, RBI did not cut the repo rate despite some hopes backed by Finance Minister P Chidambaram’s fiscal plan roll out. How do you see the stance?
RBI has taken a cautious stance, warranted by circumstances, where headline inflation continues to remain high and has shown some increase. Non-food manufactured products inflation is also sticky at about 5.6 per cent. RBI did not consider it as an opportune moment for reduction in repo rate. But a 25-basis-points cut in CRR will infuse some liquidity into the market, which will increase profitability of banks. Any action of policy rate has to be accompanied by Open Market Operations and CRR. So, maybe RBI has only cut CRR, as it did not want to send out a strong signal.

RBI has cut GDP projection to 5.8 per cent from 6.5 per cent. PMEAC’s estimate at 6.7 per cent seems quite optimistic . Are you planning to revise that?
Indications from recent developments in the agriculture and industry sectors show we may not be able to get a growth rate of 6.5 per cent or a shade higher than that for this financial year. I feel in 2012-13, India’s GDP might expand by six per cent.

RBI increased inflation estimate to 7.5 per cent from seven per cent. Where do you see inflation headed given the raise in diesel prices and capping of subsidised LPG cylinders? Would your estimate be higher than the PMEAC’s latest estimate of 6.5-7 per cent by March?
Inflation was suppressed for some time, which will become open now. The effect of increase in diesel and electricity tariff will increase headline inflation further. RBI, however, will wait for non-food manufactured products inflation to ease, which is a proxy for demand. My estimate is that inflation would be seven per cent by March.

Do you feel fiscal deficit can be contained at 5.3 per cent of the GDP this year, as the finance minister said yesterday?
I feel 5.3 per cent fiscal deficit target is quite achievable. The revenue projected is based on growth in nominal terms. The nominal growth will still be the same as estimated in the Budget at about 13.5-14 per cent. The finance minister has talked about containing expenditure and achieving disinvestment target as planned in the second half of this financial year.