The Hindu Business Line : Chidambaram confident of sustaining over 9% growth rate

New Delhi May 31 The Union Finance Minister, Mr P. Chidambaram, on Thursday said that it was time to shed lingering doubts about the sustainability and scepticism about the high growth in the Indian economy and its shift to a higher growth trajectory.

Addressing a press conference here after the official GDP figures were released, Mr Chidambaram, said, "I would argue the high growth we have witnessed in the three years of the UPA Government needs to be sustained with utmost care — because that is the way forward to eradicate poverty, generate quality jobs and improve human development indicators."

He added that economy was capable of sustaining over 9 per cent growth during 2007-08 too.

Citing examples on how East Asia and China had demonstrated that high growth was possible over long periods, Mr Chidambaram said, "China was growing at double digit rate for the last four years. It is in the larger interest of India that we maintain a high growth rate for 10-15 years. Beyond that, another generation will address the issue," he said.

The Finance Minister brushed aside apprehensions of a possible slowdown. He, however, cautioned that the high growth could put pressure on prices, especially essential commodities, in case supply fails to match demand.

"I have always maintained that however unpalatable it may be, high growth leads to high demand. And high demand does put pressure on prices. Unless supply catches up with demand, there will be some pressure on prices," he said.

Concern over rupee

Mr Chidambaram admitted that rupee appreciating to a nine-year high was affecting certain sectors such as textile exports, though the market largely determined it. "I have taken note of the concern about one or two sectors being affected by strengthening of the rupee. Those concerns will be addressed. The RBI is monitoring the movement of rupee. I suppose it is taking or will take whatever steps have to be taken," he said.

Softening rates

Speaking about the possibility of softening of interest rates, Mr Chidambaram said, "Softening of interest rates, especially in the housing sector, would depend on the inflation. The wholesale price index-based inflation has been moving downward in the last three weeks but then three weeks is too short a period to reach a definite conclusion. So, we will watch the situation carefully."

Admitting that there was excessive flow of around $25 billion of foreign exchange through the external commercial borrowing (ECB) route, he said it could pose a challenge as far as managing money supply was concerned. "The figure shows the ability of the Indian industry to attract capital at competitive rate which is good. But unfortunately, the other side is that it increases money supply and then puts pressure on managing the money supply," he added.

"I think RBI and the government have been fairly successful in balancing the need for capital and to maintain price stability," he said.

The Finance Minister, however, declined to give any specific answer when asked whether high growth could lead to overheating of economy as well.