India's economy would grow by 7.5% in 2011-12, sharply lower than the 9% growth rate the government had projected earlier, finance minister Pranab Mukherjee said on Friday, amid concerns that government had limited fiscal head-room to fund its way out of the slowdown.
"Taking into account (the trend) of the last two quarters, it appears growth (in the year to March 2012) would be over 7.5%," Mukherjee told delegates at the Hindustan Times Leadership Summit.
" In the short and the medium term, we will have to emphasise on the strategy of domestic demand driven growth," Mukherjee said but pointed that the government did not have sufficient resources to offer fiscal stimulus measures to pump-prime the economy.
"Considering the current global context, that is not all that disappointing," Mukherjee said, adding he was confident "we will be recovering some of the losses in our growth momentum."
India's second quarter( July to September) slumped to a 27-month low of 6.9%, dragged by a crippling industrial slowdown, clearly caused by an interest rate squeeze to tame inflation.
"We cannot expect that overnight we reach high growth rate of 9%, or nearer to that we shall to live with relatively moderate growth rate this year, and next year we may try to improve it higher," Mukherjee said.
The manufacturing sector, which accounts for about 17% of India's GDP, grew by a sluggish 2.7% in the second quarter.
"I am not in a position to provide the same of level of the fiscal stimulus package that I had provided in 2008 and 2009, but certain policy changes can improve the situation a little bit," finance minister said in response to question by Rajya Sabha MP NK Singh .
The Centre has targeted a fiscal deficit of 4.6% of GDP in 2011-12, but sluggish revenue collections and higher-than-budgeted government borrowings will likely push it beyond 5% of GDP.