Inflation and increasing global fuel prices would impact India’s growth rate and it can fall to eight per cent, Deputy chairperson of Planning Commission Montek Singh Ahluwalia said on Wednesday. “I would be happy if the growth for this financial year is close to eight percent,” he told reporters, after releasing Sikkim Development Report. India had recorded a growth rate of nine percent for the financial year 2007-08.
Inflation is a short-term challenge and would not affect the growth rate on a medium to long-term basis, he said. “Controlling inflation is an important short-term challenge,” he said. But added, “If properly handled, it (inflation) should not affect the average growth objective of 9 per cent in the next five years”.
Inflation touched a 13-year high of 11.42 per cent for the week ended June 14. The RBI last week increased the short-term lending rate (repo) and the mandatory deposit that banks (cash reserve ratio) are required to park with the central bank by 50 basis points each to control inflation. The move would suck out liquidity from the system, thereby pushing banks to increase their lending rates.
Admitting that growth would fall this year, Ahluwalia attributed it to international trends. “Growth all around the world is falling because of rising fuel prices and other global factors. India cannot be isolated from that,” he said. On speculation that crude prices may further go up, Ahluwalia said speculations of crude oil prices would lead to nowhere. “There is no point in speculating. Our job is to control inflation and I am confident that we will be able to do that effectively,” he said.
But, he hoped that the average growth for the next five years would hover around nine percent, the target perceived by the government.