Tough task ahead for government on economy front

It is not going to be a smooth sail all the way through 2009-10 despite some of the forecasters, like the Citibank, slightly improving their growth bias to 5.5 per cent. The bet is on investment-led expansion and not consumption driven demand.

As the global financial crisis started hitting Indian shores after September 2008, the government in concert with the Reserve Bank, gave three stimulus packages but that meant ballooning of the fiscal deficit.

Fiscal deficit

Against 2.5 per cent provided in the budget for 2008-09, the previous year ended with fiscal gap of six per cent of the country’s GDP. The interim budget for 2009-10 provided for 5.5 per cent fiscal deficit. “Fiscal deficit will remain a stress point,” the ‘Citi View’ said.

Echoing the view Moody’s said, “Returning to the path of fiscal consolidation will also be challenging if the global recession becomes protracted...,” the rating firm Moody’s said.

As the credit growth recover next year, excess liquidity could fuel inflation again. “Our inflation model suggests that WPI inflation could rise to 6.5-7 per cent by second half of 2010,” financial services firm Nomura said.  On a roller-coaster, inflation touched 0.26 per cent in April, the lowest in more than three decades, after a 16-year high of 12.9 per cent ride in August, 2008. Even as the latest inflation figure at 0.48 per cent is quite low, food prices showed a rise of over 10 per cent annually. Nomura said the economy and credit growth recovery next year, could fuel inflation again.