The Indian economy should expand by at least 8.5 per cent in 2007-08, but to sustain high growth, power shortages must be tackled fast, the prime minister's economic adviser said on Wednesday.
India, which has a population of 1.1 billion, has suffered major power shortages for years, and analysts say poor infrastructure stands in the way of Asia's fourth-largest economy notching up even higher growth.
"Among infrastructure in some areas we are moving fairly fast, whether it is telecommunications, roads or rail or even air transport," C Rangarajan, Chairman of Prime Minister Manmohan Singh's economic advisory council, said in an interview.
"But in the case of power, we continue to have bottlenecks and this is something which we must address very, very fast."
India's energy shortfall touched 9 per cent last year and at peak times the gap between demand and supply was nearly 14 per cent, according to the government data. It was the largest shortfall in nearly 10 years.
Red tape, widespread power theft and a maze of different state regulations have bogged down new projects.
India has grown at an average of 8.6 per cent over the past four years, including the estimated growth for 2006-2007. But policymakers are aiming for double-digit expansion to cut mass poverty and increase the country's global economic clout.
"What is essential is to ensure that the power projects that are being planned come on stream at the appropiate time, and all the bottlenecks that come in the way of the projects being completed must be removed," Rangarajan said.
Rangarajan, a former RBI governor, said India's annual inflation rate, which hit a two-year high in January, was showing signs of coming down but needed to fall further.
"In the current year, or 2007-08, we should really bring it closer to 5 per cent, and if possible a little below 5 per cent."
In the 12 months to April 28, wholesale inflation was at 5.66 per cent.
He said steps taken by the central bank should moderate money supply, and over the medium term an inflation rate of around 4 per cent was desirable.
The RBI has raised its main lending rate five times in less than a year to curb inflation and rein in high credit growth.
The rate stands at 7.75 per cent and the market has been expecting another increase in the next few months.
Rangarajan said good monsoon rains and healthy government procurement of wheat and rice from farmers to build food stocks would help reduce inflationary pressures.
India's annual monsoon rains are forecast to hit the coast of Kerala a week earlier than usual, on May 24. Weather officials said in April that this year's rains were likely to be 95 per cent of the long-term average, with a five per cent margin of error.
The June-September monsoon is vital to the health of India's near trillion dollar economy as it determines farm output and subsequent rural demand for a range of consumer products.