The Hindu Business Line : High oil prices could slow down economic growth, says Rangarajan

New Delhi, May 12 Rising global crude oil prices could slow down the country’s economic growth in 2008-09 to between 8-8.5 per cent, the Chairman of the Prime Minister’s Economic Advisory Council, Dr C. Rangarajan, has said.

This estimate is lower than the 8.5 per cent growth projected for 2008-09 by the Advisory Council in January this year.

“It (crude oil prices) will have an impact and could slow down economic growth. Our estimate is that in 2008-09, we might be able to grow between 8 and 8.5 per cent. Earlier in January, we had said 8.5 per cent. Now I would say 8-8.5 per cent,” Dr Rangarajan told reporters at the sidelines of the Fifth Asia Tax Forum, jointly organised by the Union Finance Ministry and National Institute of Public Finance and Policy.

Dr Rangarajan, however, said that the country, for the time being, would still be “shielded away” from high international oil prices.

“We have shielded it. That is what we will continue to do. This is perhaps not the best moment to make the adjustment,” he said.

On whether revenues will take a dent from the fiscal measures being taken by the Government, he said: “There will be some. But it can be taken care of.”

Inflation

On the issue of inflation, Dr Rangarajan said that he expects the inflation rate to come down to 6 per cent in the next three or four months.

“In spite of all the fiscal, monetary and other actions, you will find because of the base effect the inflation rate will come down to 6 per cent in the next 3-4 months. Thereafter, much will depend on monsoons. At the moment, expectations are that monsoons would be reasonably good. It is possible that inflation would go down to 5.5 per cent later on,” he said.

He pointed out that last year, at this point, inflation rate was rising very slowly. “The impact of the base would be to heighten inflation in the current year,” Dr Rangarajan said.

For the week ended April 26, the country’s headline inflation stood at 7.61 per cent, the highest since November 8, 2004.

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