The Indian economy is barely out of the recent slowdown, but concerns remain on the impact of complete withdrawal of the stimulus package on the economy.
Further, though economic parameters like industrial data and exports have shown an upward trend, it is yet to be ascertained if this positive trend is due to a genuine recovery or the low-base effect.
“Indian economy faces two concerns, like timing of the withdrawal of stimulus package and low base effect in the post-recovery scenario,” H A C Prasad, senior economic adviser, department of economic affairs, Ministry of Finance said on the sidelines of a workshop on ‘Indian Economy and Economic Survey’ here.
The Indian economy is still not out of the woods as it has to manage a huge fiscal deficit, and address inflationary concerns without hurting growth, he said.
Fiscal deficit was close to 6.8 per cent of the gross domestic product (GDP) in FY10 and the government is aiming to reduce it to 5.5 per cent of the GDP during present fiscal.
The wholesale price inflation (WPI) figures touched 9.89 per cent in February with the food inflation figures reaching 16.35 per cent.
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“Containing inflation is the most important concern of the Indian government and monetary policy is expected to take steps in that direction,” he said.
He, however, said that any rise in policy rates would not impact growth rates due to the availability of ample liquidity in the system. The GDP growth may cross the earlier estimates of 8.5 per cent this fiscal and may cross 9 per cent on the back of higher economic activity.
Referring to these issues, K L Prasad, economic adviser, Department of Economic Affairs, Ministry of Finance said, “Exports have picked up in the recent times with high capital formation and growth in per capita incomes. So, Indian economy is expected to fare better and will soon attain a double digit growth.”
Indian exports during February, 2010, touched $16.09 billion, 34.8 per cent higher in dollar terms compared to the corresponding period last year.
However, issues of long-term funding to infrastructure projects still remain in the economy despite higher budgetary allocations, he said.
“We need to carry on reforms on the corporate bond market, labour issues and should sort out to a way between subsidies against direct cash transfers,” Prasad said.
On the ‘Economic Survey’, he said the ministry was mulling to add region specific or state specific features in the document.
“There are some thoughts even to add a special segment on services sector and best practices followed by any state in specific areas,” Prasad said.