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

Q&A with PMEAC chairman

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% against 6.5% in 2011-12. However, now council chairman C Rangarajan tells Dilasha Seth that the growth will touch just 6% in 2012-13. The GDP grew 5.5% in the first quarter of this fiscal. Rangarajan also describes RBI's monetary stance taken today as cautious since headline inflation is high. Edited interview:

In the second quarter monetary policy review today, RBI did not cut repo rate despite some hopes backed by Finance Minister P Chidambaram’s fiscal plan roll out.  How do you see the monetary 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%. 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 may be RBI has only cut CRR as it did not want to send out a strong signal.

RBI has cut GDP projection to 5.8% from its earlier estimate of 6.5%. PMEAC’s estimate at 6.7% seems quite optimistic in that case. Are you planning to revise that?

Indications in light of recent development in agriculture and industry, we may not be able to get a growth rate of 6.5% or a shade higher than that for this fiscal. I feel in 2012-13, India’s GDP may expand by 6%.

RBI increased inflation estimate to 7.5% from 7%. Where do you see inflation headed given the hike in diesel prices and capping of subsidized LPG cylinders. Would your estimate be higher than the PMEAC’s latest estimate of 6.5-7% 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 7% by March.

Do you feel fiscal deficit can be contained at 5.3% of the GDP this year, as the Finance Minister said yesterday?

I feel 5.3% 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%. Finance Minister has talked about containing expenditure and achieving disinvestment target as planned in the second half of this fiscal.