The crisis to push India off the higher growth trajectory: Dr Ahluwalia

Giving the outlook on the economy, Dr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Government of India, said that the ongoing crisis, which is probably the worst crisis in last 60 years, will push the Indian economy off its higher growth trajectory, that it has seen in last 5 years. Delivering the special address at the CII’s National Conference and Annual Session 2009, he alluded that although some painful adjustment is inevitable in the current difficult time, the government is trying its best to minimize the pain.

Dr Ahluwalia, while giving an overview of the next financial year, said that 2009-10 will be significantly worse than the previous fiscal year. He however added that recovery is expected to begin sometime around second quarter of 2009-10. He noted that uncertainty is expected to reduce and results will start showing up of the various measures taken by the government in few months to come. This in turn can lead to the bottoming out of the crisis in a couple of months.

Differentiating the current crisis from the previous ones, Dr Ahluwalia pointed out that the crisis is being transmitted to India from foreign channels and the positive side is that Indian rural economy has not been as adversely affected as the urban one. He also emphasized that the crisis presents an opportunity for Indian Business leaders to introspect and optimize the present opportunity to emerge stronger for the more competitive times to come.

Dr Arvind Virmani, Chief Economic Advisor, Ministry of Finance, Government of India, ruled out any possibility of a sustained deflation in the economy. He explained that Consumer price inflation, having higher weightage of food items, is still in double figures and would come down rather slowly. Consumer Price deflator used for GDP is more indicative of inflation and is not expected to be anywhere near 0%, let alone deflation, opined Dr Virmani.

Giving a clearer picture on fiscal deficit, both Dr Ahluwalia and Dr Virmani said that fiscal deficit is expected to widen by 3.5 – 4% as compared to previous year. The higher deficit is a deliberate step by the government in order to carry out more spending to revive the economy. The increased spending by the government will not crowd out the private spending in the shorter run and once the demand revives, government would work towards achieving the targets set out by the FRBM Act.

Its important to distinguish between market regulation and institutional regulation, said Dr Virmani. According to him, India has institutional regulations in place, while it has ample room to move faster as far as market regulations are concerned. He reiterated that for revival of the fragmented markets, which resulted from the crisis, the government has carefully implemented well coordinated fiscal and monetary measures. Dr Virmani further added that India Inc would perhaps face a challenge of slackening demand for exports and thus it’s important for them to undertake a diversification strategy.

Delivering the concluding remarks, Mr Sunil Kant Munjal, Past President, CII and Chairman, Hero Corporate Service Limited, expressed hope that India would be among the first ones to emerge out of the crisis.