The Hindu Business Line : ‘Economic growth likely to be under 7%’

Bangalore, March 31 Economic growth is likely to be under seven per cent for fiscal year 2008-09, according Dr C. Rangarajan, Rajya Sabha member and former Chairman of the Prime Minister’s Economic Advisory Council. Speaking here on Tuesday on the Global Economic Recovery – Challenges Ahead here, organised by the Federation of Karnataka Chambers of Commerce and Industry, Dr Rangarajan said, “India’s growth will be only between 6.5 per cent and 6.7 per cent.” The first half of this fiscal escaped the impact of the global recession.

However, it was during the second half that the impact of the recession was felt, he observed.

The next financial year does not appear very bright for India’s GDP growth.

“Some improvement is likely to take place during the second half of 2009 and a distinct improvement in 2010, though this will be subject to improvements in the global economy,” he said.

Dr Rangarajan reiterated that the Indian financial sector was largely unscathed by the global financial meltdown.

“Indian banks and financial institutions do not suffer from a solvency problem as in the West since they are not exposed to toxic assets.”

But in the same vein he said, “The global decoupling theory, however, does not hold good.”

Falling commodity prices have ensured that imports were not a major concern.”

But, he said, exports were likely to face problems. These included textiles, automotive components and gems and jewellery. “It is difficult to create domestic demand for exporting industries,” he said.

External credits

Moreover, this fiscal year, there was little addition to reserves, since there were little capital flows. Corporate ability to raise external credits was also affected. This included trade credits, he added.

He said the focus was to address liquidity impact of the decline in reserves. Monetary measures initiated were to ensure that adequate liquidity was available. But he cautioned, “the RBI should keep a watch on liquidity and create an environment in which credit is available.”

Fiscal Measures

The fiscal measures initiated were to ensure that the aggregate demand in the economy was maintained. The Government expenditure, as a result, was expected to increase 33 per cent over the fiscal year 2007-08 levels, he said. However, he said what was also important was the composition of fiscal expenditure incurred. Such expenditure, he said, should be pushed into investments that foster increase in aggregate demand.

Justifying the Government’s fiscal target slippages, he said, “In years of economic crisis, going beyond the fiscal deficit targets is fully acceptable.”

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