Even as the Indian economy has become remarkably resilient to external and domestic shocks with broad-based recovery in agriculture, industry and services, Finance Minister Pranab Mukherjee on Friday enumerated the various challenges that need to be tackled to achieve double digit growth on a sustainable basis.
In his inaugural address at the 105th annual session of the PHD Chamber of Commerce and Industry here, Mr. Mukherjee said: “This rapid recovery of the growth momentum is comforting, but we cannot be complacent as there are several challenges that the Indian economy faces from its current external and domestic context.”
For one, the global recovery remains fragile and the “‘creeping increase' in international crude oil and other commodity prices is a reality that we are already confronting,” he said. While the oil marketing companies have had to increase petroleum product prices earlier this month, “there are also domestic supply side pressures on food prices that we have been grappling with for the past several months,” he said.
“It [double-digit growth] must be on a sustainable basis and for that, we shall have to ensure that the challenges that we are facing today, one on the price front, another on fiscal consolidation and third certain developments which are taking place [internationally] are met,” he said.
Alongside, while foreign direct investment (FDI) flows have moderated, there has been a significant increase in inflows from foreign institutional investors (FIIs). Sounding a note of caution on this front, Mr. Mukherjee said: “So far, foreign capital flows are well within the absorptive capacity of our economy and exchange rate and monetary management has not been unduly challenged. This can change at short notice, we have to be alert and monitor the developments constantly.''
Mr. Mukherjee maintained that as of now, the economy had the capacity to absorb the capital flows.
“If this goes beyond a point, definitely that would be a matter of concern but that may be in near future but not right now and, therefore, I am not pressing a panic button right now,” he said.
The Finance Minister also pointed out that merely attaining high growth owing to remarkable performance in a few select sectors of the economy would be meaningless without inclusive growth. “As we go back to the high growth path, the challenge is to harness growth to make the development process more inclusive, improve the reach and quality of our social and economic infrastructure, reduce regional imbalances and improving the opportunities for the less privileged, while strengthening the role of Government as an enabler…The benefits of economic growth have to percolate down effectively to the most marginalised and vulnerable segments of the population,” he said.
Drawing the broad contours of the ‘inclusive' development process Mr. Mukherjee maintained that the government was on the right track and exuded confidence that overall growth during the last two quarters of the current fiscal year would be as encouraging as the 8.9 per cent expansion posted in the first half of the year. “It is expected the...two quarters would be as encouraging, if not better... we assume that we will be able to reach 8.5-8.7 per cent of GDP growth this year and perhaps next year will be able to reach a higher level,” he said.
Mr. Mukherjee noted that while the government was in the process of tackling inflation and was trying to bring down prices of essential commodities, it had to strike a fine balance to ensure that such measures did not affect growth. In this regard, he referred to the Reserve Bank's recent move to inject Rs.48,000 crore into the monetary system without going in for yet another hike in its policy rates.
