Spurred by the better-than-expected growth of 7.9 per cent in the second quarter, Finance Minister Pranab Mukherjee on Friday expressed confidence that GDP (gross domestic product) expansion in the second half of this fiscal year would be ‘strong’ even as returning to the nine per cent trajectory would remain the ‘chief’ challenge.
“We expect strong growth in the second half of the current year... Our road ahead is full of challenges. The chief amongst them is to take the economy back to nine per cent per annum growth path,” he said at a conference organised by the International Chamber of Commerce (ICC) and the Federation of Indian Chambers of Commerce and Industry of India (FICCI).
In his special address at the ‘Regional CEO Forum’ here, Mr. Mukherjee pointed out that even though the recent financial meltdown that gripped the world also affected India and growth in the first quarter dipped to 6.1 per cent, the surprise recovery in the second quarter showed the strength of the stimulus measures introduced by the government and the inherent soundness of its economic fundamentals. “The GDP number in the first half of the current year vindicates our expectations and provides ample proof of the resilience of the economy,” he said.
India, Mr. Mukherjee said, is now seen as one of the most favoured investment destinations “because time and again, the country has demonstrated that economic reforms are irreversible.” Declaring that the country’s manufacturing sector would emerge as a $170-billion opportunity for investors over the next five years, he said the challenge now is to take the economy on to a higher growth trajectory of nine per cent for which the economic and business environment was “totally conducive”.
Earlier, inaugurating the conference on ‘Globalisation and inclusive growth’, Prime Minister’s Economic Advisory Council Chairman C. Rangarajan dubbed the inflation in food items as “worrisome” and reiterated that he expected the Reserve Bank to monitor the price situation closely till December before taking a decision on restraining the level of liquidity in the economy.
Dr. Rangarajan maintained that although the fiscal deficit at 6.8 per cent of the GDP in 2009-10 was “unsustainable”, there should be no premature withdrawal of the accommodative monetary and fiscal policies being pursued by the RBI and the government.
“I do expect that some efforts would be made in fiscal 2010-11 to reduce the fiscal deficit,” he said.
The PMEAC chief said it was possible that in the next fiscal, the government might want to bring down the budgeted fiscal deficit and go for fiscal consolidation. “Some expenditure could be withdrawn and some revision of excise duties and service tax cannot be ruled out,” he said.
The strong second quarter growth this fiscal, he said, has given rise to the hope that 2009-10 would close with a GDP growth of seven per cent plus. And if that trend continues, India could well clock a growth rate of 7-8 per cent in 2010-11. However, getting back to a higher growth trajectory of nine per cent would depend on the turnaround in the world economy, as the global slowdown had impacted India’s exports and capital inflows, he said.
ICC Chairman Victor Fung, in his special address, pointed out that the past 18 months have been a challenging time for the world economy. “The measures agreed to at the G20 Summit in Pittsburgh appeared to be pointing us in the right direction… But while the economy in India, China, the U.S. and many other countries appears to be rebounding, we are not out of the woods yet,” he said, especially as “unemployment continues to rise in many countries, while millions of people have fallen into poverty.”
