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India could grow 7 pc in 2009/10, says Montek Singh

business Updated: Feb 21, 2009 15:33 IST

The Indian economy could grow at least 7 per cent in the 2009/10 fiscal year, the same pace of this year, if the global economy starts recovering later this year and as the government's stimulus packages come into play, Montek Singh Ahluwalia said on Saturday.

Planning Commission Deputy Chairman, Montek Singh Ahluwalia also said Asia's third largest economy may end up with a growth rate of about 6.5 per cent in the second half of this fiscal year that ends in March 31, despite the impact of the global financial crisis.

"We haven't given any targets but probably from the second half of current fiscal year, the growth rate would have been 6.5 per cent or somewhere around that," Ahluwalia, who advises the government on key policy issues, told reporters.

The global downturn has pushed economic growth in India down to a 6-year low of 7.1 per cent estimated for the year to March, from more than 9 per cent expansion seen in the previous three years.

Factory output fell in December by 2 per cent from a year earlier while government officials predict exports dropped 22 per cent in January from a year earlier, raising the prospect of more job losses.

"We are growing below our real potential and many sectors are feeling the pain," Ahluwalia told reporters before a conference.

"Many people feel that from second half of the 2009/10, the world economy will begin to start improving. So, may be we can get back to at least 7 per cent (growth) for the coming year and the year after that start improving beyond," he added.

Since October, the central bank has cut its key lending rate by 350 basis points while the government cut factory gate duty rates, announced plans to spend an extra 200 billion rupees ($4 billion) and offered incentives to exporters.

On Monday, an interim budget presented by the finance minister projected higher spending in the next fiscal year to shield the economy from a global slump and stem job losses, fuelling fears of a spiralling fiscal deficit that is headed for a seven-year high. See [ID:nISL428472].

The higher deficit also increased the government's borrowing target to 3.06 trillion rupees from a planned 2.61 trillion rupees.

Ahluwalia said though the extra borrowing plan was pressuring liquidity in the banking system, there was a "lot of room" to manage it by end March.

India will head for general elections in May and the new government would have to present a full budget for the 2009/10 soon after it assumes office.

"We are hopeful that at the time of the full budget, an additional expenditure stimulus can be given and we are working on what will be the best form of that stimulus," Ahluwalia said.

Ahluwalia also said he agrees with the recent comment made by central bank governor Duvvuri Subbarao on interest rates.

"I think we should now wait for the Reserve Bank of India to make up its mind," Ahluwalia said.

The wholesale price index, India's most widely watched inflation measure, rose 3.92 per cent in the 12 months to Feb. 7, its lowest level in more than 13 months, stoking speculation of further rate cuts.