High oil prices can dent India's growth: Basu

Our Bureau New Delhi | Updated on March 07, 2011

The Chief Economic Advisor, Dr. Kaushik Basu addressing a press conference over the issues relating to Economic Survey after it was tabled in the Parliament in New Delhi on Friday. Photo: V. V. Krishnan   -  Business Line

The Chief Economic Advisor in the Finance Ministry, Dr Kaushik Basu, on Friday asserted that the country's economic growth could touch 10 per cent in the next three years, while cautioning that factors such as an oil price shock can cause a slowdown.

“Things can go wrong and crude is the best example… So, if the crude goes through the roof, India's growth will slow down. We will not make our 9 per cent growth (in 2011-12), but the growth will slow all over the world,” Dr Basu told reporters.

Admitting that the current account deficit being financed disproportionately by volatile capital flows was a matter of concern, Dr Basu said he hoped that the situation would be corrected soon.

On Foreign Direct Investment (FDI), he said though the slowdown of FDI this year was a concern, “there are deals in the offing which makes me feel that we don't have to really worry for too long about FDI as it is going to pick up over the next year.”

FII flows

On the foreign institutional investment flows, he said “In the beginning when this kind of flow was beginning to come into India, I was actually a bit concerned that this is going to impact our exchange rate in a very big way.” Dr Basu, however, added that, “I right now see no real serious worry on FII or FDI. One (FDI) has slowed down, one (FII) is very high. I just hope it will be corrected.”

Inflation worry

He, however, said inflation is a chief cause for worry, but added that any sharp policy intervention to control it may hurt employment prospects.

“We can't be unmindful of the fact that a very sharp action on the inflation front can cause unemployment to spike up… We are expecting the year to close with around 7 per cent inflation. It is unacceptable, we want to bring it down much further,” he said.


Asked whether the growth was translating into more employment, he said, it was a global problem, adding “There is a lot of talk in many countries that you are getting jobless growth.”

“In industrialised countries that is understandable, but in India it is not. So you have to improve the amount of employment that takes place,” he said.

While the Government was pitching in with programmes such as NREGS to create more employment, there was a need for the private sector to provide more jobs, he said. “For that we need our industrial and manufacturing sectors to do much better. You also need more urban development and small towns to become magnets for labour,” Dr Basu said.

He said though 58 per cent of the country's labour was engaged in agriculture, the sector only contributed to 14.3 per cent of the national income. “So some of this labour is under-employed for sure as their output was very small,” he said, adding that many of them should be directed to the industrial and manufacturing sectors in the due course.

Asked whether allowing FDI in retail would help in controlling inflation, he said, he would not be able to give the Government's view on it. However, personally, he said FDI in retail could be considered.

Published on February 25, 2011

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