Growth and equity should go together: Rangarajan

Economic growth is not the only dimension for measuring performance or achievement and it is equally important to find out who benefits from the growth, according to Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister.

In his address at the 13th convocation ceremony of the Indian Institute of Management Kozhikode (IIMK) here, he said that growth and equity must be woven together to provide a coherent pattern of development.

He said that the absolute level of poverty was still high and the country had miles to go before poverty is eliminated. It should be ensured that the growth process included every section of the society and a high growth rate alone would enable the Government to raise the resources to meet the various socio-economic obligations.

Dr Rangarajan said Indian economy would grow at nine per cent in 2011-12.

Farm growth

While agricultural growth rate may be moderate, the industry and services sectors will grow faster.

A frequently asked question is whether India has the potential to grow at nine per cent in a sustained way. The country's savings rate has crossed 34 per cent of GDP and the investment rate exceeded 36 per cent of GDP. Even with an incremental capital-output ratio of four, it should enable the economy to grow at nine per cent.

While the broad macro-economic parameters relating to savings and investment are conducive for achieving a high growth rate, there was need for removing the constraints that may come in the way, Dr Rangarajan noted.

Thrust areas

He said that there were a few areas where immediate engagement of the policy-makers was required. In the short run, managing inflationary pressures, particularly food grain prices, is the biggest challenge.

The country underwent two years of high inflation. A deficient monsoon badly affected 2009-10 with foodgrains production declining by 11 million tonnes and the consequent increase in foodgrains prices triggering inflation.

Though it was expected that inflation would moderate in 2010-11, it did not happen and as of February this year, the year-on-year inflation, as measured by the wholesale price index, was 8.3 per cent. While the food price inflation of last year was caused by the rise in foodgrains prices, this year it has been triggered by rise in the prices of vegetables, fruits, egg, meat and fish.

Vegetable prices

However, a declining trend in vegetable prices has been noticed in the last four weeks and it is expected that inflation will come down to around seven per cent this month. But, it is also necessary to watch what happens to crude prices in the global market.

The country should use all the policy instruments, such as intervention in the grains market and fiscal and monetary measures, to bring down inflation further and re-anchor inflationary expectations to the four to five per cent comfort zone, Dr. Rangarajan said.

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