Confirming a firm economic recovery following its “timely and appropriately calibrated policies” to minimise the “knock-on effects of the global crisis of 2008”, the Central Government on Friday pegged the country’s GDP (gross domestic product) growth for the current fiscal at over 7.75 per cent even while admitting that rising prices of essential food items remained a major concern.
In its ‘Mid-Year Review’ of the economy tabled in Parliament by Finance Minister Pranab Mukherjee, the government said: “The Economic Survey 2008-09, presented in July 2009, had indicated that growth in real GDP this financial year could be around 7.0 (+/- 0.75) per cent. With the latest GDP data on the second quarter of 2009-10 being higher at 7.9 per cent, the growth outlook for the next two quarters and for the whole year is likely to be in the upper bound of the range predicted; and may even exceed it.” Ostensibly, the main plank of the government’s optimistic growth projection for the entire fiscal year is the surprisingly better-than-expected expansion of 7.9 per cent during the July-September quarter which signalled a swift turnaround from the impact of the global meltdown which had led the economy to slip from nine per cent to 6.7 per cent in 2008-09.
Underscoring “the strong fundamentals and resilience of the economy and, also, the effectiveness of the policy measures undertaken to stall the adverse impact of the crisis”, the Review noted that the stimulus given to the industry, including the easy money policy, to tide over the meltdown impact should not be withdrawn till the economic recovery is sustained. “The timing of the exit and the pace at which it should be carried out will depend on the strength of the recovery and its sustainability without fiscal stimulus…The exit from the current expansionary policy stance has to be so calibrated that the recovery process is sustained and inflationary expectations remain well anchored,” it said.
As for the negative factors that still need to be tackled, the Review — prepared by the Finance Ministry’s Department of Economic Affairs (DEA) — expressed serious concern over food inflation soaring to a ten-year high of nearly 20 per cent and stressed the need for effective steps immediately. “The rise in prices of primary articles of consumption of the common man that has been occurring in recent times is indeed a cause of concern, and this needs to be attended on an urgent basis,” it said.
Alongside, however, the Review pointed out that while the supply shortages in certain commodities could be met through imports, the option would have limitations as items such as pulses were available only in limited quantities in the international market. “Moreover, there is always the risk that these imports will not materialise at the time of our greatest need,” it said, while noting that the solution would be to encourage food production and increase domestic availability of essential food items.
As for concerns over surge in capital flows into the country, the Review said: “Inflows could be managed without significant costs or trade-offs in policy setting.” It, however, argued for continuing the policy of gradual, sequenced and calibrated capital account convertibility of Indian rupee.