Too early to press the panic button: Expert

The Chairman of PM’s Economic Advisory Council, Suresh Tendulkar, said on Monday the economy would expand by at least seven per cent during the current fiscal provided the monsoon does not fail. He ruled out the need for pressing the panic button at the moment.

Talking to news persons on the sidelines of a function to observe the third Statistics Day here, Tendulkar said, “If the monsoon does not fail, the economy will grow by at least 7 per cent (during 2009-10).”

Asked about the impact of delayed monsoon on agriculture and the economy, Tendulkar said, “It is too early to press the panic button.”

Rainfall, according to latest official estimates, is likely to be only 93 per cent of the long-period average. As regards inflation, Tendulkar said, it is likely to remain between five and six per cent by the end of current financial year.
“The Wholesale Price Index would still be under five to six  per cent, if monsoons are all right. If monsoon fails, it will be a little more”, he added.

Tendulkar also expressed the confidence that the economy, which has been reeling under the impact of the global financial meltdown, will recover by September. Having grown by about nine per cent continuously for three years, the growth rate slipped to 6.7 per cent during 2008-09 on account of the global financial meltdown.

Noting that high interest rate was a matter of concern, Tendulkar said, it might not be possible for banks to lower the lending rates in absence of commensurate reduction in deposit rates.

However, Tendulkar added RBI’s policy rate cuts was getting reflected on the lending rates of the banks.The country’s largest lender State Bank of India (SBI) recently reduced its Benchmark Prime Lending Rate (BPLR) by 50 basis points to 11.75 per cent.

Unsatisfactory indicator
Wholesale Price Index (WPI), currently used to measure inflation, is an “unsatisfactory” indicator of price movement and is eroding the credibility of government data in the minds of people, said Tendulkar.
“It (WPI) is an unsatisfactory indicator of rate of change of prices of consumer goods with which our everyday experience of inflation is associated”, he said.

Noting that the divergence with the WPI and movement in consumer prices has been rising in the recent past, Tendulkar said, “(it is) inadvertently contributing to the erosion of the credibility of WPI in the minds of the general population.”
Although the WPI-based inflation has been in the negative for two consecutive weeks, the Consumer Price Index, which measures movement in the prices that consumers pay, reported double-digit increase in May.

Pointing out that services sector contribute significantly to the GDP, Tendulkar said, efforts should be made to develop indices for services like banking, eventually leading to general price index of services like the WPI for commodities.

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