The Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, has said the Indian economy is likely to grow at about 6 to 6.5 per cent in the current fiscal. “Although seven per cent growth is unlikely because of the drought, there are mechanisms in place to counter its adverse impact,” he said, while addressing members of the Federation of Karnataka Chambers of Commerce and Industry (FKCCI) here on Saturday.
Dr. Ahluwalia said the UPA Government’s “conscious efforts to build a strategic food stock reserve” had resulted in stocks being 16 million tonnes higher than last year and about 30 million tonnes higher than what it was two years ago. He said the Union Government had “mechanisms in place” to ensure relief to drought-hit States. He said the Government “was willing to take a second look” if States demanded enhanced allocations for the National Rural Employment Guarantee Act. He pointed out that the “average demand for employment was only for 40 to 45 days in 2008-09.”
Borrowings
Asked about fears that the huge increase in government borrowings in the current year may “crowd out” private investment and result in higher interest rates, Dr. Ahluwalia said this “only reflects the other side of the fiscal stimulus.” He said: “It was our judgment that the fiscal stimulus was needed to counter the decline in private investment. If we had not provided the stimulus there would have been a demand shortfall.” “Businessmen”, he said, “are better off with a higher level of demand even if interest rates are higher,” he said. “Falling interest rates with no demand does not help them in any way,” he said.
Dr. Ahluwalia said the effect of the stimulus packages was “beginning to kick-in with a lag.” The scheme to provide funds for the acquisition of buses for road transport corporations, under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), “has injected demand in the commercial vehicle sector that was severely hit by the recession,” he said.
Dr. Ahluwalia said growth during the Eleventh Plan (2007-12) was likely to be below the target of nine per cent because of the shortfall of two to 2.5 percentage points in 2008-09 and 2009-10. “The year 2010-11 is also likely to be a slow-growth year,” he said. “It is only in 2011-12 that the global economy is likely to achieve stronger growth,” he said.
Asked for his views on opening up of the retail sector to foreign investors, Dr. Ahluwalia said, “The resistance to the opening up of the retail sector is a serious economic mistake.” He said India cannot promote the diversification of agriculture, especially into high-value crops and processed products without the growth of organised retail. “I am an unapologetic proponent of the modernisation of the retail industry,” he said.
Dr. Ahluwalia said the mid-term appraisal of the Eleventh Plan was likely be completed by the end of the year. He said this would enable the Finance Ministry to “take stock of the economy” before preparing the next budget. The newly constituted Planning Commission is to meet for the first time on September 1. Senior Ministers attending the meeting will be presented a “tentative assessment” of the state of the economy, Dr. Ahluwalia said. A “status report” on the implementation of the integrated energy policy, which was released in December 2008 by the first UPA Government, would also be presented at the meeting, he added.
