Amid near-consensus among analysts that the Indian economy will grow by sub-eight per cent this financial year, Commerce Secretary Rahul Khullar pegged economic expansion for 2012-13 at seven per cent.
Even this much growth would require reversal of monetary stance by Reserve Bank of India and reforms, besides good monsoon, he said on Tuesday. “I think we shall be happy if we manage seven per cent growth rate,” he said.
He said even seven per cent economic expansion would depend on “many” factors, including monetary easing by the RBI and economic reforms. “My estimation is that this seven per cent will be contingent on three things. One is good rains. Without a good kharif and rabi, all will be off. Then, there has to be a next wave of reforms because without that, there is not going to be an essential impetus. Third, there has to be a mood change on monetary policy stance,” Khullar said.
Supposing, inflation is brought under control and monetary policy eases, that itself will change business confidence. “What will be critically important to get even 7 per cent growth rate in 2012-13 and to raise it beyond that will be a revival of both consumer and investor confidence in terms of boosting aggregate demand both consumption as well as investment,” he explained. “Investment demand depends on interest rate.”
Dun & Bradstreet (D&B) senior economist Arun Singh agreed to this view. D&B had cut India’s economic growth rate to 6.8-6.9 per cent for this fiscal from the earlier forecasts of 7.5 per cent.
He attributed a cut in D&B’s forecast to tight monetary stance by the RBI, saying it is taking a toll on investment and capital goods. Capital goods production declined by one per cent in the first eight months of this fiscal against a whopping 18.2 per cent rise in the corresponding period of last fiscal.
Indian economic growth fell to nine-quarter low of 6.9 per cent during July-September 2011-12. Together with a 7.7 per cent economic growth in the first quarter, it delivered 7.3 per cent GDP expansion in the first half of this fiscal.
Singh said D&B’s business optimism index fell by 8.8 per cent in the January-to-March quarter of 2012 from the previous quarter.
The Reserve Bank has raised policy rates 13 times to combat high inflation before pressing a pause button on it in December. Even though inflation fell below nine per cent for the first time in a year to stand at 7.47 per cent in December due to substantial decline of over 7.5 percentage points in the rate of price rise in food articles, analysts do not see RBI going for reversing its tight monetary stance in its policy review on January 24.
Singh expected the RBI to start cutting rates from April or May, depending on inflation rate at that point of time. He also projected the economy to grow by 6.9-7 per cent next fiscal.
Analysts say the government and the RBI, unlike during the 2008-09 crisis, do not have much room to go for expansionary kind of policies. This is because the government’s fiscal deficit has widened, and there are upside risks to inflation. Food inflation which has given way to deflation in the last two weeks of December is seasonal and none is sure if would not rise again.
Major reforms in the country are hanging in balance due to differences between political parties as well as the Centre and states. The much-talked about foreign direct investment in multi-brand retail has been held back even after the Cabinet approved the proposal, as the opposition and some allies of the ruling UPA coalition opposed it.
Similarly, pension reforms could not be taken up by the Cabinet after UPA allies, mainly the Trinamool Congress, opposed the move. Another reform — the goods and services tax — is also pending, because the Centre and states are not in agreement with some provisions of the constitution amendment bill.
