The economy, which grew an 8.8 per cent growth rate in the first quarter of the current fiscal, could see growth dipping below 8.5 per cent in the July to September quarter, Chief Economic Adviser Kaushik Basu said. Addressing mediapersons on Friday he said that the growth in the third quarter is expected to be high and could be over 8.8 per cent.
The finance ministry has already projected an 8.5 per cent growth rate for the current financial year. “I expect Q2 growth to be lower than this and Q3 growth to again be high and the year to end up with a growth of 8.5 per cent,” Basu said.
The medium to long run economic growth prospects looked positive primarily due to the robust manufacturing output. “I get the sense that the manufacturing sector growth of the last months is not just a one-time correction but the start of a new trajectory for Indian manufacturing,” he said.
However, he said that services and agriculture sectors are currently performing below capacity but once these sectors return to a normal growth trajectory, India would be able to register robust growth.
A sharp curb on policy variables may help in lowering inflation, he said, but that would pull down the growth rate and would lead to higher unemployment. “This is a hard balancing act, and just because we do not get regular data on unemployment, we cannot be cavalier about it and let unemployment rise,” he said.
Basu said that the Reserve Bank of India’s decision to increase policy rates — repo (the rate at which banks borrow from the central bank) and reverse repo (the rate at which the central bank borrow from the banks) is a move in the right direction as it would help easing demand for consumer goods.