PM's council pegs growth at 9%

The Prime Minister's Economic Advisory Council today presented an optimistic outlook for the economy, putting economic growth this fiscal at 9 per cent, half a percentage point higher than the Reserve Bank of India's projections, and inflation a percentage point lower than the central bank.

Projected inflows for net foreign direct investment are pegged at $15 billion, up from the current level of $8.4 billion. However, merchandise export forecasts at $147 billion are significantly lower than the commerce ministry's target of $160 billion.

"The fundamentals of the economy are so strong that 9 per cent growth seems achievable despite the monetary measures taken by the RBI," council member Soumitra Choudhury said. 
 

ROBUST OUTLOOK
2007-08	PM's EAC	RBI	NCAER
GDP	9%	Around 8.5%	8.30%
Inflation	Within 4%	Under 5%	5.30%
Exports	$147 bn	$160 bn*	$144 bn
CAD	1.5% of GDP	n.a	1.3% of GDP
*Commerce ministry

In its Economic Outlook for 2007-08 released here today, EAC Chairman C Rangarajan bet on a reasonably benign monsoon and conducive external conditions to facilitate growth of 9 per cent for the third consecutive year.

The report said the farm sector is set to grow at 2.5 per cent while industrial output and service sectors are expected to grow at 10.6 per cent and 10.4 per cent, respectively.

On a lower forecast of inflation inflation, Rangarajan said, "The pressure from petroleum product prices have already been factored in while setting the target of 4 per cent of inflation level. If oil prices do not increase, inflation may go below 4 per cent."

With a GDP growth rate of 8 per cent, the work force will become equal to the labour force by 2010.

"A stronger growth rate, which is quite possible, will take the economy to this point even in a shorter period," the report claimed.

However, the council cautioned the government about the downside risks to the economy. It said the government was unlikely to achieve the fiscal responsibility and budgetary management target of eliminating revenue deficit by 2008-09.

"It needs a lot of effort on the part of the government to eliminate revenue deficit," Rangarajan told reporters, replying to a query. The report also maintained that substantial off-budget liabilities was a cause for concern, which need to be taken care of. Such liabilities aggregate to about 2 per cent of the GDP.

It also cautioned that once the Sixth Pay Commission makes its recommendations, there may be potential expenditure increase due to revision of pay scales of central government employees.

While denouncing that the current economic growth is cyclical, the report, however, cautions that if adequate attention is not paid to augmenting infrastructure, particularly power supply, overheating may persist on account of productivity and supply constraints.

Holding against the view that more curbs on capital inflows should be put as it is now larger than the current account deficit, the council said, "Any restriction on equity investment, be it direct or portfolio investment, will be most unwise. However, on the debt side there are some areas that can do with some scrutiny."

On the issue of central bank intervention in the foreign exchange market, the council said, "We do not think the solution is simply to stop intervention."

It suggested three instruments""letting the rupee to appreciate, partially sterilising the excess capital inflows and encouraging capital outflows while putting restrictions on some kinds of capital inflows.