Growth to moderate to 7.5-8% this fiscal, says Rangarajan

The Prime Minister’s Economic Advisory Council (PMEAC) today said India’s economic growth could moderate to 7.5-8 per cent this fiscal and saw no change in Reserve Bank of India’s (RBI’s) tight monetary stance till inflation cools down.

“There are certain factors, both domestic and external, which may add to the slowdown of growth rate, but we still think that the growth rate could be 7.5 to 8 per cent,” PMEAC Chairman C Rangarajan told reporters on the sidelines of a function here.

The panel would release its economic outlook in a week’s time.

The country had registered 9.1 per cent GDP growth in 2007-08, but a host of measures, including by the RBI, to contain inflation may have taken a toll on economic expansion.

 

Rangarajan said until there was a significant change in the price situation the current stance of the RBI would continue. “If there is moderation in the price, I am quite sure that monetary policy stance would change.”

He expects inflation to ease to 8-9 per cent by the end of March 2009 from nearly 12 per cent now.

For the week ended July 19 inflation rose to 11.98, just 0.02 percentage point away from 12 per cent.

Rangarajan said if inflation has to go further down it would have to be because of the factors like oil prices, which has cooled to $118 a barrel level yesterday after touching a high of $147 a barrel in July.

The Reserve Bank in the quarterly review later last month increased the short-term lending rate to 50 basis points, while the mandatory deposits that banks have to keep with the central bank was raised by 25 basis points in a bid to contain runaway inflation.

As a result of the policy action, many leading public and private sector banks were forced to increase both the lending and deposit rates as high as 100 basis points to maintain their margins.

The policy action was intended to slow down the credit growth and squeeze money supply.

Rangarajan said that unless there was a change in price situation, monetary policy stance would continue.

Commenting on the fiscal deficit, Rangarajan said off budget liability may go up.

Fiscal deficit defined in Budget may not necessarily increase sharply, he added.

As per the Fiscal Responsibility and Budget Management Act, the government intends to bring down deficit to 2.5 per cent of the GDP by the end of the current financial year.