‘Macro-economic indicators favour 8 to 9 per cent growth'

Projecting a growth rate between 7 and 7.25 per cent for the current fiscal, C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, said on Wednesday that macro-economic indicators were conducive for sustaining 8 to 9 per cent growth in the coming years.

The consolidated growth rate in the 11 Plan period would be 8.25 per cent, as against 5.5 per cent in the IX Plan period and 7.5 per cent in the 10 Plan period. In 2008-09 when the growth rate was only 6.7 per cent, the fiscal deficit rose up to 6 per cent of GDP, as the balance of payment position had to be set right.

In 2009-10, a growth of 8 per cent could be attained and the fiscal deficit also went up to 6.4 per cent. In 2010-11, 8.5 per cent growth could be registered, and the fiscal deficit could be brought down to 4.7 per cent owing to revenue generated from 3G auction, he said, exuding hope to bring it down to a reasonable level of 4.6 per cent this fiscal.

The former RBI Governor expected the pressure on rupee to ease on account of impending capital inflow in the first three months of the calendar year. Delivering the inaugural lecture of the Lecture Series of Indian Institute of Management–Tiruchirapalli, Dr. Rangarajan observed that high growth does not warrant a higher level of inflation, and felt all policy instruments must be used to re-anchor inflationary expectations.

He blamed the high inflation in the two preceding years on decline in food grains production and increase in prices of vegetables due to failure of monsoons. Between October 2011 and December 24, 2011, food inflation declined from 11.81 per cent to 3.36 per cent.

Though poverty had declined by 8 to 8.5 per cent from 1993-94 to 2004-05, and 3 to 4 percentage in 2009-10, the country had a long way to go as in actual numbers the existing percentage below poverty line accounts for 350 million people out of a population of 1.2 billion.

Achieving growth with equity was formidable. Sustaining present rate of growth, translating growth into poverty reduction, expanding employment opportunities, improving productivity, bringing down economic disparities – across and within states, and improving human development index (from the existing 119 position) constitute the challenges.

Indian economy can be insulated only to some extent and cannot be entirely isolated from the economic crises in the rest of the world, triggered by the sub-prime crisis in USA.

Developing countries such as India were affected as exports came down and capital flow was impacted due to the risk perception. He, however, expected the US economy to perform better in 2012.

Dr. Rangarajan advocated agricultural growth of 4 per cent per annum and setting right the power situation as matters of critical importance for sustaining 8 to 9 per cent growth. While growth is important to raise living standards and reduce poverty, pushing the economy beyond this level will result in balance of payment problems, he cautioned.

Changes the world over arising from market expansion at global level require trained managers to look after business and other entities to link internal strengths with external opportunities, Dr. Rangarajan said.

Prafulla Agnihotri, Director, IIM-T, said the model of liberalisation of economy envisaged by Dr. Rangarajan has reflected in the growth of a powerful middle class. The pyramid structure of the economy has been made spherical, he said.