JOIN USEconomy to grow 9%, says Centre
In its mid year analysis (MYA) of the economy in 2010-11, the government said “the very rapid 8.9 per cent growth in the Gross Domestic Product (GDP) recorded in the first half of the current fiscal raised the possibilities of a faster recovery to the pre-crisis levels.”
Faster growth is expected to continue in the third and final quarters of the current fiscal as agriculture recovers “sharply” from last year’s drought and as inflation starts to fall and is expected to continue to decline, the MYA projected.
“Both, in turn, will boost demand in rural and urban areas and improve investor confidence,” the MYA tabled by Finance Minister Pranab Mukherjee in Parliament said.
Because of these factors, the MYA estimated that that growth in 2010-11 would be 8.75 per cent with 0.35 per cent variation on either side. The range indicates the possibility of crossing the nine per cent mark this year itself. However, the MYA cautioned that there were some risk factors which could affect the growth momentum of the economy. These include the economic situation in the Euro area turning for “worse with heightened risk” from Irish, Portuguese and Spanish economies.
“There have been certain uncertainties particularly recovery of Euro. It (Euro) has relevance both from viewpoint of foreign investment and also from external trade, particularly export,” the Finance Minister Pranab Mukherjee told newspersons while explaining risk factors facing Indian economy’s growth momentum.
A sizable chunk of Indian exports are destined towards Europe. Therefore, the rapid and robust recovery of Euro is important from India’s point of view, he explained. The growth momentum of Indian economy also faces risk from ongoing high prices of primary commodities at the global market.
“This heightened volatility abroad inevitably affects the Indian economy slowing external demand and raising domestic price pressures,” the MYA cautioned. However it hoped “prudent” fiscal and monetary measures would shield the Indian economy from external shocks and help maintain stable growth.
In regard to inflation, rising spree of which was a major concern to the Congress-led UPA government, the MYA noted that it had started declining and hoped that it might fall to six per cent by March, 2011 from over eight per cent now.
Significantly, the MYA suggested that for sustaining the ongoing growth momentum in the medium to long term and raising it further to the double digit levels it was necessary further move ahead with economic reforms. On deepening of reforms, it highlighted the need for further fiscal consolidation and steps to deal with external capital flows “which are posing some adjustment challenges” in the economy.
The surge in capital flows has raised the question of domestic absorptive capacity which could lead to “over heating” of the economy, the MYA cautioned. It also recommended series of specific measures for development of infrastructure and core industries.