Economy may cross 9%; inflation to fall to 6% by March

Overcoming the impact of global economic recession, Indian economy is poised to achieve nine per cent growth in the current financial year itself driven by robust performance of agriculture and industry sectors. 

In its mid-year analysis of Indian economy, the government said high inflation, which was a major concern, has started declining and hoped that it may fall to six per cent  by March, 2011 from over eight per cent now. 

"The very rapid 8.9 per cent growth in GDP recorded in the first half of 2010-11 raises the possibilities of a faster recovery to the pre-crisis level... It is estimated that growth in 2010-11 will be 8.75 per cent with variation of 0.35 per cent on either side," the analysis said.

The government has, however, made a case for deepening strengthening of economic reforms to sustain high growth rate and raising it further to double digit level in the medium to long term.

Immediately after tabling the analysis in Parliament, Finance Minister Pranab Mukherjee told reporters, "I am hoping that inflation will come down to 6 per cent by March 2011."

In the economic survey this year, Mukherjee had projected a growth rate of 8.5 per cent with variation of 0.25 per cent on either side.

"Now why we have shifted the goal post from 0.25 to 0.35 per cent, one of the reasons being there have been certain uncertainties particularly recovery of Euro. And Euro has relevance both from viewpoint of FDI, investment and also from external trade, particularly export. 

"A sizable percentage of Indian exports are destined towards Europe. Therefore, the recovery rather rapid and robust recovery of Euro is important from India's point of view," Mukherjee said.

Contrary to estimates by various think tanks, the economy during second quarter expanded by 8.9 per cent taking the overall growth rate to the same level in the first half and raised hopes of 9 per cent growth in the current fiscal.

On deepening of reforms, the finance ministry has underlined the need for further fiscal consolidation and steps to deal with external capital flows "which are posing some adjustment challenges" in the economy.

The surge in capital flows, it said, has raised the question of domestic absorptive capacity which could lead to "over heating" of the economy.

However, with current account deficit of 2.9 per cent in 2009-10, the capital flows at 4.1 per cent of the GDP have not been a "matter of concern", the analysis said.

The analysis called for improvement in infrastructure and and core industries, universalisation of elementary education and issues concerning climate change as move to deepen and strengthen economic reforms to sustain high growth levels.

The Finance Ministry in the Economic Survey earlier, had projected a growth rate of 8.5 per cent with variation of 0.25 per cent on either side.

"Now why we have shifted the goal post from 0.25 to 0.35 per cent, one of the reasons is there have been certain uncertainties particularly recovery of Euro. And Euro has relevance both from the viewpoint of FDI, investment and also from external trade, particularly export.

"A sizeable percentage of Indian exports are destined towards Europe. Therefore, the recovery rather rapid and robust recovery of Euro is important from India's point of view," Mukherjee said.

On deepening of reforms, the finance ministry has underlined the need for further fiscal consolidation and steps to deal with external capital flows "which are posing some adjustment challenges" in the economy.

The surge in capital flows, it said, has raised the question of domestic absorptive capacity which could lead to "over heating" of the economy. 

However, with current account deficit of 2.9 per cent in 2009-10, the capital flows at 4.1 per cent of the GDP have not been a "matter of concern", the analysis said. 

The analysis called for improvement in infrastructure and core industries, universalisation of elementary education and issues concerning climate change as move to deepen and strengthen the economic reforms to sustain high growth levels. 

As regards the fiscal deficit, the analysis said, "The government is fully committed to gradual reduction in fiscal deficit and accordingly fiscal deficit for 2010-11 will not exceed 5.5 per cent of the GDP".

The government in the budget proposed to reduce the fiscal deficit from 6.6 per cent in 2009-10 to 5.5 per cent in the current fiscal.