Finance minister confident of better short-term growth prospects.
Finance minister Pranab Mukherjee said on Wednesday the government would have to address slippages on various economic fronts in the coming Budget.
Admitting it would be a challenge to restrict fiscal deficit to the targeted 4.6 per cent of gross domestic product (GDP) this year, Mukherjee said: “As I set about preparing the Union Budget for the next year, I have to take stock of the developments in the past months and find ways to address the slippages, the gaps and building on outcomes that need to be consolidated in the ensuing year.”
Mukherjee made these comments while addressing the 84th annual general meeting of the Federation of Indian Chambers of Commerce and Industry here on Wednesday.
Besides expressing concerns about the government’s finances, he cautioned this quarter would be difficult and growth in 2011-12 might be around 7.5 per cent or even less.
He expressed confidence that short-term growth prospects would improve in the coming months. “There are some clear signs of inflation moderating in the coming months. I expect it to be in the range of six to seven per cent in March-end,” he said.
“Industrial production is also showing signs of a pick-up. While the services sector has retained its growth momentum, the agriculture sector, despite a high base year production, is likely to provide a buffer for the moderation in growth rate in the current financial year,” he said.
After the economy clocked 8.5 per cent growth in 2010-11, GDP growth slowed to 6.9 per cent in the July-September quarter. The mid-year analysis last month lowered the growth forecast for 2011-12 to 7.5 per cent, from nine per cent projected around February last year.
Mukherjee attributed volatility in capital flows, slowdown in external demand and fall in the rupee to the euro zone sovereign debt crisis. He said the complex mix of financial and real sector problems was thwarting a fuller recovery and that had been one of the most challenging periods for policy makers.
“It (global uncertainty) has impacted the Indian economy through the financial market channel, the equity and foreign exchange markets, due to the risk-averse nature of global capital flows… Rupee depreciation is largely driven by global factors and the pressure would continue until there is a durable solution to the sovereign debt problem in Europe,” Mukherjee said.
He said all these factors had come in the way of the economy benefiting from softening in international commodity prices, including that of fuel oils, and hence, better management of domestic inflation. India’s monetary and fiscal policy response was geared towards taming domestic inflationary pressures, which impacted consumption and investment growth.
The wholesale price index based inflation for December stood at a two-year low of 7.47 per cent, mainly due to a steep fall in the rate of price rise in food items. Industrial output also sprung a surprise by growing at 5.9 per cent in November, against a dip of 4.6 per cent in October.
Mukherjee assured the government had the political will to do the needful to meet aspirations of the people, but sometimes the process of reforms got overtaken by political events. He admitted foreign direct investment in multi-brand retail and some legislative amendments had not seen smooth legislative passage, but the government could not be accused of not trying. “For this process to be speeded up, Indian enterprise has to help build consensus across our diverse social and political space, to benefit from the opportunities before us. It has to demonstrate its willingness to marry its economic interests with some larger social responsibilities,” he said.
