Having shrugged off the adverse impact of the global meltdown, the Indian economy appears well poised to touch the pre-crisis growth level of 9 per cent in the current fiscal itself on the back of robust recovery in all three sectors — agriculture, industry and services — even as uncertainties in the global economies persist.
In its ‘Mid-year analysis 2010-11' tabled in Parliament on Tuesday by Finance Minister Pranab Mukherjee, the government also sought to draw comfort from the fact that inflation, which had been a major concern all these months, has shown a downtrend and hoped that it would ease to 6 per cent by March next from the current high level of over 8 per cent.
Drawing a rosy scenario along with some circumspection, the analysis said: “The very rapid 8.9 per cent growth in GDP [gross domestic product] recorded in the first half of 2010-11 raises the possibilities of a faster recovery to the pre-crisis levels. Faster growth is expected to continue in the third and final quarters of the current fiscal year, as agriculture recovers sharply from last year's drought and as inflation starts to fall and is expected to continue to decline. Both, in turn, will boost demand in rural and urban areas and improve investor confidence. In light of the above factors, it is estimated that growth in 2010-11 will be 8.75 plus or minus 0.35 per cent.”
The wider variation in the expected growth, it explains, is owing to the uncertain global environment. “The range indicates the possibility of crossing the 9 per cent mark this year itself; but is wider than the earlier estimate owing to higher risk factors, which include the economic situation in the Euro area turning for the worse with heightened risk from the Irish, Portuguese and Spanish economies. Uncertainty in the global economy, nevertheless, will likely persist. Growth continues to be slow in the U.S. and Europe.”
Alongside, to maintain the high growth trajectory, the Finance Ministry's analysis makes out a case for deepening and strengthening economic reforms further to not only sustain the current momentum but also raise it to double digit levels in the medium to long-term.
“I am hoping that inflation will come down to 6 per cent by March 2011,” Mr. Mukherjee told the media immediately after tabling the mid-year analysis and explained the current economic scenario. “Now why we have shifted the goal post from 0.25 to 0.35 per cent. One of the reasons is there have been certain uncertainties, particularly recovery of euro. And euro has relevance both from viewpoint of FDI, investment and also from external trade, particularly export...”A sizable percentage of Indian exports are destined towards Europe. Therefore, the recovery rather rapid and robust recovery of euro is important from India's point of view,” he said.
On the need for deepening reforms, the government sought to stress on further fiscal consolidation along with the necessary steps to tackle and absorb the external capital flows “which are posing some adjustment challenges” in the economy. The surge, it said, has raised the question of the country's absorptive capacity which, analysts fear, could lead to “overheating” of the economy. Alongside, however, the analysis also sought to assure that with the current account deficit of 2.9 per cent in the previous fiscal year, the capital flows at 4.1 per cent of the GDP have not been a “matter of concern” during the current year.
