Even as the Reserve Bank of India has given adequate feelers to the government to start the process of rolling back the stimulus measures, Chief Statistician Pronab Sen on Wednesday felt that a decision on this crucial issue should be taken on the basis of the actual growth scenario which would be available in May when the GDP (gross domestic product) data for the current fiscal is slated for release.
As of now, going by the strong industrial growth numbers, apprehensions are rife that the government may choose to go in for partial withdrawal of the stimulus packages, as suggested by the apex bank and other economic analysts, to contain the inflationary pressures on the economy.
Making out a case for the cautious approach, Mr. Sen, who is also the Statistics and Programme Implementation Secretary, pointed out that the industrial growth numbers only revealed the supply-side picture and provided no indication of demand being actually there to absorb that supply. The GDP growth data, on the contrary, also provide the demand-side scenario and thus give a complete picture of the economy.
Alongside, however, Mr. Sen also noted that it was up to Finance Minister Pranab Mukherjee to take a call in the budget for 2011-12 on whether to roll back the stimulus on the basis of industrial growth numbers or the GDP growth figures. “It is up to the Finance Minister to either play safe [in the budget] and wait for actual economic figures to come out, or play gamble and take a decision depending on industrial growth numbers,” he said.
Aided by the fiscal and monetary stimulus measures, industrial growth during November 2009 soared to 11.7 per cent from a mere 2.5 per cent posted in the same month a year ago. As a consequence, for the first eight months of the current fiscal, industrial production grew by 7.6 per cent as compared 4.1 per cent in the previous fiscal.
However, the RBI, during it recent policy review moved towards a tight-money policy to contain the rising food inflation which may seep into the overall inflation. In its review, it has also suggested that the government should think of withdrawing some of stimulus measures.
In his interaction with the media on the change in the base year to 2004-05 from the current 1999-2000 for calculation of national income, Mr. Sen also pointed out that the change in base year by itself would reduce the fiscal deficit to 6.41 per cent for the projected 6.8 per cent.
This, however, he said would be a mere statistical illusion as the actual deficit would remain the same. Only the percentage would come down as the country’s GDP in absolute terms would be larger owing to the revision in base year, he said.
NCAER’s projection
With discernible signs of economic recovery, economic think-tank National Council of Applied Economic Research (NCAER) has upped its GDP (gross domestic product) growth projection for the current fiscal to a conservative 7 per cent, just a tad higher than the 6.9 per cent forecast earlier, but still way below the revised estimates by the government and the Reserve Bank of India (RBI).
“The overall GDP growth for the year is pegged at 7 per cent, somewhat above our previous forecast of 6.9 per cent provided in October 2009,” the NCAER said in its quarterly review.
