Tight money policy, global factors impacting growth rate: FM

Attributing economic slowdown to Reserve Bank's tight money policy and global financial problems, Finance Minister Pranab Mukherjee today said the country needs to target a double-digit growth rate.

"India has to target a double-digit or near double-digit growth in the not too distant future. We must learn to sustain high growth over extended period of time," he said while addressing a conference of the industry chamber Assocham.

The economic growth during 2011-12 is estimated to slip to three-year low of 6.9 per cent from 8.4 per cent a year ago. This slowdown, Mukherjee hoped, would be temporary and the country would be able to revert to high growth trajectory in the years to come.

The Minister is expected to announce steps to boost growth in the budget for 2012-13 to be presented in the Lok Sabha on March 16. India was growing at over 9 per cent before the global financial crisis of 2008 pulled down country's growth rate to 6.7 per cent in 2008-09.

Pointing out that global factors and tight monetary policy of the RBI slowed down growth, Mukherjee said, "I expect this slowdown to be temporary and economy would soon revert to the high growth trajectory."

The Minister further said that the policy measures taken in recent months to ease the capital control would make available additional resources for the infrastructure sector. The Reserve Bank has increased the interest rates for 13 times since March 2010 to tame rising inflation. However, the central bank has lately indicated that it would lower the interest rates to boost growth.

The central bank is scheduled to announce mid-quarterly review of monetary policy on March 15.

Referring to global crisis, the Finance Minister said, "Over the past few months, widespread economic concern with a complex mix of real and financial problems have surfaced. It is a setback to the global recovery. Even tepid economic recovery that we have seen so far in some of the advanced economies is stalling."

The relatively robust revival in the emerging market economy is also beginning to falter. The financial markets, which had never fully recovered from the earlier crisis, are under renewed stress, he said.

This continuing global uncertainty is also affecting India, he said, adding the increased volatility in capital flows is resulting in heightened fluctuation in stock and currency markets.

Acknowledging that the growth has now slowed to just under 7 per cent, Mukherjee said that "tight monetary policy has impacted investment and consumption growth though high cost of credit".

On opening up the retail sector, the Finance Minister, said, "We have liberalised FDI in single brand retail and a consensus for operationalise the decision on opening FDI in multi-brand retail is being pursued."

FDI flows which had considerably slowed down in 2010-11, have bounced back and as of January 2012, FII inflows have also picked-up, he said.

Policy measures have been taken in recent months to further ease capital controls, making available a framework for pooling of debt finances for infrastructure, he said.
A Direct Investment Scheme was announced on January 1, 2012 under which Qualified Financial Investors (QFIs) will be allowed to invest directly in Indian equity market, he said.

"This is the first time that we have taken steps to open up direct access to our capital markets for the individual foreign investors other than the institutional investors and foreign venture capital firms," he said.

The Finance Minister said the government has now put in place the New Manufacturing Policy to give a big push to the manufacturing sector with the objective of increasing its share in the GDP to 25 per cent and create 100 million jobs in the next ten years.

The policy encourages the setting-up of New Investments and Manufacturing Zones across the country. These zones would address the problems of infrastructure, would create world class urban centres and also absorb surplus labour by providing them gainful employment, he said.

"We are putting in place an enabling framework for ease of doing business, compliance based on self-regulation, ensuring availability of skills, technology and finance within a supportive environment," he said.

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