Economic growth would be around 6.7%, asserts Rangarajan

Standard & Poor today lowered the country's economic growth forecast from 6.5% to 5.5%

Chairman of Economic Advisory Council to the Prime Minister C Rangarajan today asserted that India's economic growth would be around 6.7% in the current year, commenting that the assessment of rating agency Standard & Poor is wrong. The rating agency, according to reports, has today lowered the country's growth forecast to 5.5% for 2012 as against its earlier forecast of 6.5%.

Speaking to reporters on the sidelines of Annual Day Celebrations of the Madras School of Economics, in Chennai, he said, “Our own forecast was that the growth rate of the economy in the current rate would be 6.7%, that is a shade better than the last year. I think the growth will pick up in the second half of the year and there are indications for that.”

 

“Also the agricultural performance this year will also be better this year than what was expected a few months back. The monsoon has turned out to be better than what was forecast about two months ago. Therefore taking all these facts into account I would still think that the growth rate in the current year will be 6.7%,” he added.

According to reports, Standard & Poor today lowered the country's economic growth forecast from 6.5% to 5.5%, pointing towards to effects of insufficient rainfall, weak recover of US and continuing crisis in European Union.

Speaking about the recent reforms by the government, he said that reforms are an ongoing process to sustain high growth rate. For instance, fiscal correction is needed even after the changes that have been made now, otherwise the fiscal deficit would tend to be high.

“But we need to be work towards a process of fiscal consolidation and that in turn will require adjustment both with resepect to the tax revenue as well as expenditures,” he added commenting on the future reform strategy.

Some of the measures that have been taken to ease the capital flows would enable the government to finance the current account deficit. But the current account deficit itself might remain high, though it will come down from 4.2% last year to around 3.5% of the Gross Domestic Production (GDP) this year.

“This itself will be high. But we need to work towards containing the current account deficit. But in the short run, we should work towards encouraging our capital flow to finance the current account deficit,” he said.

He further explained that the government has to keep a watch on the level of subsidies, and there is a need to try and keep the subsidies at a level which is around two% of the GDP, immediately. While accepting that subsidies are important to support the poorer sections of the community, it must be targeted and appropriately pruned.

Even in the case of diesel, nearly two thirds of the increase in the price of crude oil are being bourned by the government and the upstream oil companies. Therefore it is only one third of the increase in the price of crude oil that is being passed on, he said.

Plans are to keep the average rate of growth for the next five years at 8.2% and since it is the first year after the target set, the country would see a growth rate of only 6.7%, as per the present estimate.

He also added that while the diesel price increase would increase the wholesale price index and other price indices, over the medium term, the policy of raising the price of diesel is appropriate even from the point of view of containing inflation.

Answering to a question, he said that the committee appointed to study deregulation of the sugar sector in India, would submit its report over the course of next one week or 10 days.