Growth could be 8 per cent during FY 12: FM

Finance Minister Pranab Mukherjee on Thursday projected India's economic growth at 8 per cent for the current fiscal, lower than the budgetary estimate of 9 per cent, due to measures taken to rein in high inflation."If oil prices continue to rise, it would be difficult to achieve higher GDP. GDP may come down to 8 per cent from (the projected) 9 per cent," Mukherjee told reporters on the sidelines of ADB annual meeting in Hanoi.The government's (India) primary concern now is to manage inflation while sustaining high growth rate.Hardening of global commodity prices, particularly oil prices has accelerated inflation, he said adding "our projection is 7.5-8 per cent inflation during the year".

Earlier this week, Reserve Bank of India too had lowered economic growth projection to 8 per cent due to measures taken to tackle high inflation especially food prices.India's economy is estimated to have clocked 8.6 per cent growth in 2010-11.Mukherjee said Inflation, particularly the increase in food prices, is a major concern for India as well as other developing countries."We are trying to reduce it through supply and demand side management. On supply side we are trying to remove bottlenecks and on demand side RBI has adjusted interest rates to mop up excess liquidity in a manner so that it may not affect the economic activity," he said.With adequate buffer stock and hopefully a good monsoon, "we are looking at easing of the price situation in India", he said.

Overall inflation was 8.98 per cent in March and has been above the 8 per cent mark since January, 2010.Asked whether the government is planning to increase diesel prices in the near future, Mukherjee said "We will announce it as and when the decision is taken".

In its annual monetary policy, the RBI had advocated hike in prices of petroleum products.The government has not allowed state oil firms to revise diesel prices since June last year when crude oil was ruling at USD 72-73 per barrel.Crude oil is trading at around USD 110 a barrel in international markets.

Referring to speculations in global commodity market, Mukherjee said increase in prices is not merely a function of demand and supply, but also driven by huge financial flows into commodity market in search of higher return.

Mukherjee said managing capital flows so as to dampen potential threats to macro economic and financial stability remains a continuous challenge."Not withstanding these risks, the Indian economy is poised to sustain the growth momentum," he said.On volatility in capital flows, he said "International Monetary Fund (IMF) is working out a framework to deal with excess capital flow".Excess liquidity is having a spillover effect and collective action is needed to deal with it, he said.On possibility of an alternative to US dollar as a global currency, he said "we have to adopt a calibrated approach".He said all the alternative currencies must have adequate liquidity, should inspire confidence and be fully convertible on current and capital account.

Growth forecasts to be revised downward, hints eco advisor 
Describing the current level of inflation as "unacceptable", Chief Economic Advisor in the Finance Ministry Kaushik Basu on Thursday indicated the government will revise downward the growth forecast for 2011-12.

According to the government's forecasts given in the Budget, Indian economy was projected to grow by nine per cent in the current fiscal (2011-12), against 8.6 per cent in the previous year.However, the Reserve Bank has reduced the growth estimates to 8 per cent in the face of tight monetary policy to check the near nine per cent rate of inflation.

"All over the world there has been revision (growth prospects). So we might go in for a revision. Obviously, it is not going to be upwards," Basu told reporters in New Delhi.

Several multilateral agencies has revised the growth forecast for India downward for the current year.While IMF has lowered the projection to 8.2 per cent from 8.4 per cent for 2011, ADB said India's growth will slow to 8.2 per cent in 2011-12, from earlier estimated 8.7 per cent, on high oil prices.

While the government generally takes a mid-year stock of the economy, the Finance Ministry would begin reviewing the targets by the end of this month, he said.While stating inflation remains at "unacceptably high" level, Basu said "I am expecting it will dip down a bit".

The general inflation for March was 8.98 per cent. Basu said the inflation for April would be "definitely below nine per cent" while not indicating the level.However, Basu's optimism was not in line with RBI's projections about inflation. The central bank in its annual credit policy said the level of price rise would remain "elevated" till September.An inter-ministerial group set up at the behest of Prime Minister Manmohan Singh in February will be meeting on Friday to take stock of the price situation, especially of the essential commodities.Basu heads the panel and Friday's meeting may be attended by RBI Governor D Subbarao. 

Basu said the inflation has become a global phenomenon, more so in Asia with money flowing in from the developed countries.Calling for a global coordination to mitigate the problem of rising prices, he said each country is following policies suited to itself rather than finding common solutions. 

To rein in the inflation, the Reserve Bank has hiked policy rates nine times since March 2010.More so the inflation in food items is spilling over to the manufactured items category.On the issue of growth-inflation trade-off, RBI had said "high and persistent inflation undermines growth by creating uncertainty for investors and driving up inflation expectations". 

Courtesy : DDN