GDP growth may be 7-7.5% this fiscal, says Rangarajan

GDP growth may be 7-7.5% this fiscal, says Rangarajan
The Hindu Business Line, December 20, 2009, Page 4

Agriculture may show negative growth.

Our Bureau, Hyderabad

Dr C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister, on Tuesday forecast the GDP to grow at 7 to 7.5 per cent this fiscal, signalling an improvement in the domestic economic climate.

Speaking at a meet on ‘Challenges before the Indian Economy' here today, he cautioned that agriculture could show a negative growth of 1-2 per cent, while the industrial and services sectors are projected to grow at 8.6 per cent and 8.7 per cent respectively.

Dr. Rangarajan also noted with concern the rising food inflation, which is at an 11-month high now, stating that the task ahead was to check food inflation.

He advocated a two-pronged strategy that included improving supplies by issuing out part of the foodgrain reserves through the PDS and importing certain additional foodgrain.

He indicated that the Reserve Bank of India could look at raising the CRR to suck out excess liquidity from the system, even though the central bank may watch the price movements for some more time before taking any decision on rate hike.

“I am not saying that a rise in the CRR is imminent,'' he said adding that the supply position of the food products and the seasonal decline in prices would also be factors in deciding the tools to deal with inflation.

Dr Rangarajan said the challenge next year would be to bring down fiscal deficit by 1-1.5 percentage points of the GDP. Agricultural growth should not be allowed to fall below four per cent, as a decline in growth by even one to two percentage points would translate into a significant shortfall in food production. Low yields and power shortage were the major challenges before increasing farm productivity.

In the long run, he felt that if there were to be a consistent growth of four per cent in agriculture and nine per cent in industrial and services sectors over the next two decades, India could be propelled into the club of developed nations.

He also called for prudence to improve the fiscal situation, identifying the root cause for the recent global economic crisis as proliferation of derivative products.

“The lesson to be learnt from the crisis is that all segments of the market need to be regulated,” he pointed out.

Deposit-based banking was more prudent than the practice of short-term borrowing from capital markets by banks, he felt.