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Govt grapples with policy headaches

India’s economic growth will likely dive below 8 per cent this year and the government faced risks of major fiscal slippage, the prime minister's economic advisory council said.

business Updated: Aug 13, 2008 20:59 IST
Gaurav Choudhury

India’s economic growth will likely dive below 8 per cent this year and the government faced risks of major fiscal slippage, the prime minister's economic advisory council said on Wednesday.

The outgoing chairman of the council, C. Ranagarajan, also warned that inflation, which has already hit a worrisome 12-per cent mark, is unlikely to ease anytime soon. Instead, he predicted, it might touch 13 per cent in the near term.

Finance Minister P Chidambaram, however, suggested things are not as bad as they appear. “There is no slowdown in the economy. There is no slowdown in infrastructure and new projects,” Chidambaram after a meeting with chief executives of state-run commercial banks.

Still, the prime minister’s panel said: “The downside risk to our growth expectations in 2008-09 is primarily from a further deterioration in global conditions with its attendant impact on India — be it in the sphere of oil prices or capital markets.”

The council estimated the economy would grow 7.7 per cent in 2008-09, sharply lower from the annual average of more than 9 per cent gross domestic product growth in the last three years.

The government, however, was confident that the economy would grow at close to 8 per cent.

“If the prime minister's economic advisory council pegs it at 7.7 per cent, I can confidently say it will be close to 8 per cent,” Chidambaram said after a meeting with heads of state-run banks.

High inflation and interest rates appear to have hit Indian industry hard. Latest data showed factory output growth halved to 5.2 per cent in first quarter of 2008-09 as compared with last year’s 10.9 per cent growth in the corresponding period.

The PM’s council endorsed the central bank’s hawkish monetary stance.

“Maintaining a tight monetary policy stance and active fiscal and other methods are necessary to bring down inflation rates,” it said.

Chidambaram said he was confident that credit delivery will still be brisk and that productive sectors will not be starved of loans.