Expressing optimism over the current downturn in the country, former Reserve Bank of India (RBI) chief C Rangarajan said here that the Indian economy will see improvement from middle of FY10.
On his visit to the Entrepreneurship Development of Institute to inaugurate the ‘Eighth Biennial Conference on Contemporary Issues in Entrepreneurship Research’, Rangarajan said, “Our economy will see improvement from second half of FY10 and will recover fully in FY11.”
Talking about how the recession abroad is having an adverse effect on the country’s exports of goods and services, Rangarajan suggested that the current account deficit in 2008-09 could be taken to around 2 per cent of GDP.
“The decline in growth rate in exports will strongly affect some sectors where exports constitute a significant proportion of the total production such as textiles, automobile components, gems and jewellery,” he added.
When asked about the decline in inflation, Rangarajan said, “We might see a further decline in inflation. In 2-3 months, the year-on-year inflation may come down to zero. While the consumer price index (CPI) is running high, the wholesale price index (WPI) is not reflective of CPI. “
However, substantial decline in WPI can be seen in near future.”
Commenting on possible impact on the economy post-elections, Rangarajan pointed out that additional expenditure will be incurred which might increase the fiscal deficit. “We should ensure fiscal deficit begins to drop by 2010-11. The interest payment in proportion to revenue by the government may rise as a consequence to fiscal deficit. Consequently, level of borrowing will also rise and the interest rates may not remain low,” added Rangarajan.
On possible steps that can be taken by the new government, Rangarajan said, “The new government should redistribute expenditure in favour of sectors like automobile components and textiles. Also, expenditure for 2009-10 is 6 per cent higher than the revised estimates. Therefore, the government should ensure that these expenditure are actually incurred.”
