The Hindu : Business : 8-9% GDP growth is here to stay, says Chidambaram

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Wednesday, Aug 27, 2008
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8-9% GDP growth is here to stay, says Chidambaram

Special Correspondent

Centre pumping money into economy
Inflation to soften by mid-November

- PHOTO: SHANKER CHAKRAVARTY

RURAL DEMAND: Union Finance Minister P. Chidambaram flanked by CII President, K. V. Kamath (left), R. Seshasayee (second from right), Chairman, CII, and Director-General, CII, Chandrajit Banerjee, arriving to attend an interactive session in New Delhi on Tuesday.

NEW DELHI: Even as signals of a growth slowdown are discernible in the wake of surging inflation and high interest rates, Finance Minister P. Chidambaram on Tuesday expressed confidence that the economy would be back on track by the second half of 2009-10.

In response to corporates’ key concerns at an interactive session with the Confederation of Indian Industry (CII) on growth slowdown, Mr. Chidambaram maintained that a moderation in the business cycle had been caused by external factors. However, since rural demand continued to be strong, he expected the country’s GDP (gross domestic product) growth to be at eight per cent plus this fiscal. The Government, he said, was pumping money into the economy through its spending on various schemes to create demand.

At the outset, CII President K. V. Kamath pointed out that even though the current pipeline of investments remained intact, fresh investment proposals were being affected by rising cost of inputs, rising interest costs and signs of slowdown in demand. On the positive side, he said there was no problem with liquidity. Banks, he said, were having sufficient funds although the availability of long-term funds remained an issue.

“While the existing investments in the pipelines were being adhered to... May be, newer projects which were at concept stage, which were at the backburner may not come to the front burner,” Mr. Kamath told newspersons after the meeting with the Finance Minister. Alongside, he did not visualise any easing of the tight money policy as long as high inflation persisted. “If inflation is an issue... till we see inflation easing, then it would be unrealistic to expect any easing of monetary policy,” he said.

Responding to this, Mr. Chidambaram agreed that there could be some holding back on new projects on account of high interest rates, but credit offtake across sectors continued to be strong. As long as inflation continued to be high, it would be difficult to moderate interest rates, he said while expecting inflation to soften by mid-November when the base year effect was likely to wear off.

The past episodes of industrial slowdown had been caused by a combination of factors such as high oil prices, slowdown in global growth, high interest rates and poor rural demand.

This time around, rural demand has remained strong while the other three factors have turned adverse. Supply constraints in sectors such as power and mining and infrastructure bottlenecks along with high interest rates have further impacted industrial growth, the industry body noted.

Mr. Chidambaram, however, advised the industry that they “should look at it positively that an 8-9 per cent growth is here to stay and this is backed by numbers.” To stress the point home, he quoted figures from CMIE which talked of a monthly accretion to new projects worth Rs. 1,50,000-1,70,000 crore (about $40 billion).

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