The biggest challenge before us is to tackle inflation, which may cross the seven per cent mark by end-March. - Dr C. Rangarajan

The biggest challenge before us is to tackle inflation, which may cross the seven per cent mark by end-March. - Dr C. Rangarajan
The Hindu Business Line, January 1, 2010, Page 6

Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister

I am of the view that 2010 will definitely be a better year for the Indian economy than the year that went by. For one, the global financial situation is improving, which will significantly lessen the negative impact on the Indian economy. Then, hopefully, we will have better monsoons next year, which will nudge up agricultural production.

I forecast that we will end this fiscal (2009-2010) with a GDP growth of 7 to 7.5 per cent. While the agricultural sector may see a negative growth of between 1 and 2 per cent, the industrial and service sectors could trace a growth rate of 8.6 per cent and 8.7 per cent respectively.

We are now getting back to a higher growth path and I forecast a GDP growth of about 8 per cent for 2010. But, in the long run, the economy needs to grow at 9 per cent for the next two decades, if we aspire to significantly improve the quality of life of the common man. The biggest challenge before us is to tackle inflation, which may cross the seven per cent mark (with respect to Wholesale Price Index) by end-March and this is a matter of concern. We should act on the supply side, backed by monetary actions that reduce liquidity.

The second biggest challenge before us is to ensure adequate power generation to meet the requirement of a rising growth rate of the economy. In the first two years of the Eleventh Plan itself India had a shortfall in power generation vis-à-vis the target. In my estimate, India needs to generate an additional 50,000 MW in the last two years of the current Plan period. Another challenge before us is managing fiscal deficit, even though the stimulus package on the fiscal side will continue up to March . I feel that next year we should prudently balance two things — adequate demand pick-up to sustain growth and starting of the process of fiscal consolidation. We should target bringing down the fiscal deficit by one to 1.5 per cent, which, however, will still be above the FRBM (Fiscal Responsibility and Budget Management) target.