Finance Minister Pranab Mukherjee said on Wednesday the economy could grow by 7.75 per cent in 2009-10 – a clear sign of a rebound in a drought year hit by inflation -- amid speculation that his budget later this month for the next fiscal year could set the tone for a phased withdrawal of fiscal stimulus measures.
The measures were announced last year to counter the downturn in which a global financial crisis was compounded by a monsoon failure.
“With the latest GDP data on 2009-10 indicating 7.9 per cent growth in the second quarter, the growth outlook for the next two quarters and for the whole year is expected to be in the upper range of more predictions for the Indian economy,” Mukherjee said at a function.
The latest data could set the tone for withdrawal of stimulus measures announced last year to counter a downturn and all eyes will be on the budget for 2010-11 that will be presented later this month.
“The budget can attempt a roadmap for exit,” C. Rangarajan, chairman of the prime minister's Economic Advisory Council told reporters in New Delhi.
Mukherjee’s estimate matches the upper end of the band envisaged by the Economic Survey for 2008-09, which was also echoed in a mid-term review of the economy in December. The Central Statistical Organisation (CSO) on Monday forecast GDP growth for the full year at 7.2 per cent, while the Reserve Bank last month put the number at 7.5 per cent.
Many of fiscal stimulus measures, however, have left a gaping hole in public finances, forcing the government to borrow a record Rs 4 lakh crore or 6.8 per cent of the GDP in the current fiscal year.
“The government has little choice but to begin the much-needed process of fiscal consolidation in the upcoming budget. It will likely come through with a credible plan to cut the fiscal deficit to 5.5 per cent of GDP,” said Rajeev Malik of Macquarie Securities.