Not unduly worried about 0.1% contraction in industrial output, Prime Minister's key economic adviser C Rangarajan today said the situation would improve in the coming quarters and the fiscal would end with a growth rate of 5.7%.
"I certainly think in the first quarter of next year or the last quarter of this fiscal, we can see a definite positive growth in manufacturing," Rangarajan said while commenting on November IIP data which revealed a contraction of 0.1%, mainly due to poor performance of manufacturing and capital goods sector.
On the impact of declining industrial production on economic growth, he said "the growth rate for the current fiscal will be between 5.5% or 6%. Perhaps 5.7% is the likelihood".
The growth rate in 2013-14, he said, would be higher by at least 1%.
He also expressed the confidence that Reserve Bank would take into account various factors, including the inflation data before taking action on rate cuts in its quarterly policy which is due on January 29.
"The Reserve Bank will look at a number of factors. I think what the WPI [Wholesale Price Index] will be an input for decision making. The RBI will see [that] appropriate action is being taken to contain the fiscal deficit...Trends are in the right direction perhaps. But let us wait," he said.
The government is slated to release the inflation data on January 14, two weeks ahead of the RBI's monetary policy review.
The WPI-based inflation may hover around 6-7% in the next year and about 6% in the following year, he added.
"The WPI inflation in the normal course would have come to 7% by March 2013. Perhaps there could be some pick up in the headline inflation due to some adjustments made in the administered prices.
"...We can see as far as wholesale prices are concerned, the inflation rate hovering around between 7 and 6% next year and perhaps seeking 6% towards the end of next fiscal", he added.
On ballooning current account deficit (CAD) that rose to a record high of 5.4% of GDP ($22.3 billion) in the first quarter, Rangarajan said various steps were needed to deal with the situation.
"Well the CAD will have to be handled by a variety of instruments. I think it is not amenable to bring it down very quickly in a very short run. We need to have medium term strategy for doing it," he said.
As regards fiscal deficit, Rangarajan said the government would be able to restrict it to 5.3% during 2012-13.
"There are three more months and we will see that all action that are required to contain the expenditure will be taken and I am pretty sure we will close to reach the target of 5.3%," he said.
