Rangarajan’s three-point strategy to get back to 8-9% growth

The Indian economy has the ability to grow anywhere between 8 and 9 per cent, provided the Union Government addresses three major macroeconomic concerns — taming inflation, ensuring fiscal consolidation and containing balance of payment, said C. Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council, without elaboration because of the run-up to the Budget.

Delivering his keynote address at the Chamber Day celebration of Hindustan Chamber of Commerce, here, he said in the current financial year, the economy is likely to grow by close to 6 per cent.

manufacturing boost

The growth will predominantly be driven by the manufacturing sector, which seems to have picked up in the early January-March period.

“I believe that actions taken by the Government recently have started showing a change in investment sentiment,” he said. The year 2013-14 will be better than the current year. The full impact of the Government’s decisions on FDI issues will only be seen in the course of the next year, which will result in private investment activities picking up.

There is also a focused attention on the part of the Government to achieve the production and capacity utilisation targets in some of the key infrastructure sectors such as coal, power, roads and railways.

Power crisis

“This, in my view, will act as a stimulant for private economic activity and will result with the growth rate of the economy picking up, and I expect the growth rate next year to be at 7 per cent,” he said.

However, he also pointed out that the Government needs to find ways to resolve issues such as the power crisis. Comparing India with neighbouring China, he said China adds power generation capacity in one year what India takes to add in five years.

Talking about the current account deficit, he said it is likely to remain more or less at the same level of last year, mainly due to high import of gold, coal and oil.

Elaborating on this, he said the Indian economy is growing at a faster rate compared with most other countries. It is because of this that India’s exports are affected as target markets are growing at slower rates. The imports are higher, because we are growing at a faster clip.

“This itself is causing a certain imbalance in the system,” he said. On gold imports, he said India imported $60 billion in 2011-12. Usually, it would be around $35-40 billion. This extraordinary increase is because apart from common attraction towards the yellow metal, it has become a hedge against inflation. However, going by the numbers available up to November last year, it has softened. The Government has also taken some measures to discourage gold import.

Overall, he expressed optimism that a growth rate of 8-9 per cent can be restored in a reasonable time frame.

ravikumar.ramanujam@thehindu.co.in

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