Expressing confidence that the Indian economy would show signs of recovery from the second half of the current financial year, eminent economist C. Rangarajan, however, said that a return to nine per cent growth of 2007-08 was unlikely in the near-term.
Dr. Rangarajan, who is the Chairman of the Prime Minister’s Economic Advisory Council, predicted that economic growth was likely to be between 6 per cent and 6.5 per cent during the current fiscal and the year 2010-11 would see distinct improvement with economy growing around 7-8 per cent. “To go back to 9 per cent growth, we have to wait for the world economy to improve and world trade to pick up,” he said.
Need for regulation
He was delivering the keynote address at an international conference on Global economic meltdown: challenges and prospects organised by Disaster Management, Infrastructure and Control Society here on Thursday. The former RBI Governor said the shock waves produced by the financial crisis would have its own effect on the structure of capitalism where acceptable capitalism would require more regulation.
Elaborating on the circumstances that led to the global crisis, he said the Indian financial system was directly not exposed to the “toxic” or “distressed” assets of the developed world as Indian banks had very few branches abroad.
The indirect impact was, however, felt both through trade and capital flows while there was a sharp deceleration in the rate of growth of exports since October last year.
In contrast to the strong inflow of over $108 billion in 2007-08, the next year saw a net increase of only $9.1 billion and the flow of portfolio capital turned negative. “The capital flows are not going to be the same again,” he said.
Stressing the need for the RBI to watch the liquidity situation, Dr. Rangarajan favoured slow withdrawal of the accommodative policy of the RBI and the Government. Though ‘quantitative easing’ could not continue indefinitely, the withdrawal should not be premature and the RBI should guard against the re-emergence of inflation.
Chief Minister K. Rosaiah, Ramanuja Mission Trust managing trustee S. A. R. P. V. Chaturvedi and others also spoke. Organising committee chairman Justice P. Ramakrishna Raju presided over the inaugural function.
In an informal chat with reporters later, Dr. Rangarajan said, interest rates were likely to “harden a little” by the end of the current fiscal. There were also signs of recovery in credit off-take and the impressive improvements in inflows would ensure that the total addition to the reserves would be around $20 billion.
Asked about slowdown in disinvestment, he said the Government had put forward the idea, but a decision should be taken at an appropriate time ensuring that the market was doing well.