Date:07/08/2008 URL: http://www.thehindu.com/2008/08/07/stories/2008080755321900.htm

Business

Rangarajan projects 8 % growth

Special Correspondent

Centre’s off-budget liabilities can go up
Fall in inflation rate depends on crude prices

— PHOTO: PTI

MODERATION IN GROWTH: Chairman, Economic Advisory Council to Prime Minister, C. Rangarajan, addressing the ‘Financial inclusion summit’ in New Delhi on Wednesday.

NEW DELHI: Prime Minister’s Economic Advisory Council (EAC) Chairman C. Rangarajan on Wednesday projected a moderation in India’s economic growth to 7.5-8 per cent this fiscal with no change in the Reserve Bank’s monetary stance until inflation cools down to reasonable levels.

Speaking to newspersons on the sidelines of a function here, Dr. Rangarajan said: “There are certain factors, both domestic and external, which may add to the slowdown of growth rate, but we still think that the growth rate could be 7.5-8 per cent”.

Following a robust GDP (gross domestic product) growth in 2007-08, the prospects of maintaining the high growth rate during the current fiscal has come under pressure, mainly owing to a slew of fiscal and tight monetary measures by the Government and the RBI as part of their ongoing efforts to contain the inflationary spiral.

In his overview of the economy a week ahead of the release of the EAC’s projections, Dr. Rangarajan held that the current stringent stance maintained by the apex bank would undergo a change only on significant changes in the price situation. “If there is moderation in the price, I am quite sure that monetary policy stance would change,” he said.

According to Dr. Rangarajan, the rate of inflation was likely to ease to 8-9 per cent by the end of the current fiscal in March 2009 from the prevailing level of close to 12 per cent. However, the fall in the inflation rate would depend on factors such as crude oil prices which slid to about $118 a barrel on Tuesday as compared to a high of $147 a barrel touched in July.

In a bid to stem inflation, the RBI, it may be recalled, had raised the short-term lending (Repo) rate by 50 basis points to 9 per cent. Alongside, it had hiked the CRR (mandatory deposits that banks have to keep with the Central bank) by 25 basis points to 9 per cent, following which banks were forced to increase the lending and deposit rates so as to maintain their margins. The net intended policy effect was to squeeze money supply and render credit dearer to slow down growth in advances.

On the fiscal deficit situation, Dr. Rangarajan noted that while the Centre’s off-budget liabilities could go up, the fiscal deficit, as defined in the Budget, might not necessarily increase sharply.