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Pranab's prescription to better India's growth rate

Last updated on: January 9, 2012 13:01 IST

Pranab's prescription to better India's growth rate

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Moderating inflation and a likely reversal of tight monetary policy will boost the economic prospects during 2012, said Finance Minister Pranab Mukherjee.

"I expect the domestic factors to contribute to a better growth performance (in 2012)... The New Year is here, it will bring happiness and prosperity to all," Mukherjee said in an interview to India Today magazine.

He said the likely reversal of the tight monetary policy in the economy will boost demand.

"Both investment demand and consumption demand should improve as the monetary policy becomes accommodative with inflation declining to more acceptable levels. If external factors also contribute favourably, we should rapidly recover the loss in growth," Mukherjee said.

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Asked about his priority for 2012, he said: "Recovering the growth momentum with better price stability."

Food inflation entered into the negative zone in late December and experts have said that this will help bring down headline inflation to below 7 per cent by March-end.

Headline inflation has been near double-digit since December, 2010.

The Reserve Bank of India has been following a tight monetary policy for the past two years to tame inflation, but India Inc has blamed rising interest rates for fresh investments getting hindered and for the slump in industrial growth.

Mukherjee refuted suggestions of any 'policy paralysis' hindering investments.

"I do not agree with this view.

"A growth of 7 to 7.5 per cent in the current global context is not bad at all by any standards.

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Image: Finance Minister Pranab Mukherjee.
Photographs: Reuters

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"Indeed, we should take pride in the strong fundamentals of our economy and that we continue to be among the top fast-growing economies in the world," he said.

The government last month revised downwards its growth forecast for the Indian economy to 7.5 per cent in the current fiscal, in line with RBI's projection, from the earlier estimate of 9 per cent.

The economy grew by 8.5 per cent in 2010-11.

Economic growth during the second quarter (July-September) stood at 6.9 per cent, the lowest in over two years.

Industrial production contracted by 5.1 per cent in October.

Mukherjee accepted that the current economic situation in the European Union nations and the US will have some impact on India's short-term prospects but added that the economy's fundamentals remain strong.

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"These (impacts) would be mainly through slowdown in global trade and uncertainty in capital flows. However, our economic fundamentals. . . should help us manage these global consequences," Mukherjee said.

The minister added that domestic growth drivers remain intact and growth in consumption demand is around 6 per cent.      

". . . . we would like to see some improvement in corporate investments in the coming months. That should happen with inflation moderating and the monetary policy becoming accommodative," he said.

Admitting that there has been some slowdown in growth of investments, Mukherjee said that such a situation has arisen due to weak global cues, tight monetary policy and some domestic uncertainty.

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"We are committed to pursuing reforms and we should be able to make progress in enacting the required legislations underpinning policy action in certain sectors as soon as the current circumstances permit us to take the next steps," he said.

On the Reserve Bank of India's management of inflation, Mukherjee said the rate of price rise has been above the 'comfort zone' that during the the current and the previous financial years.

"As a result, over the past 20 months, the RBI has raised policy interest rates with a view to giving a strong signal to moderate inflation and check inflationary expectations.

"Medium-term concerns on growth require that we bring it down to a more acceptable level at the earliest," he said.      

The Finance Minister blamed the recent volatility of the rupee on global factors, mainly the economic uncertainty in the Eurozone.

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"RBI's approach has been to allow markets to determine the exchange rate while intervening only to manage unusual volatility. I support this approach.

"We need to allow the exchange rate movements to absorb the shocks emanating from the external sector, while maintaining a stable reserve position it improve market confidence in the domestic economy," Mukherjee said.

He termed as 'justified' the concerns expressed by the corporate sector about foreign debt obligations on account of the weakening rupee, which fell by over 15 per cent against the dollar during 2011.

"I am confident that progress in the resolution of the eurozone sovereign debt issues and the strength of our economic fundamentals should see the rupee recover ground in the coming months," he said.

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Tags: , Mukherjee , RBI , India

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Mukherjee said that while there is concern about possible slippage in achieving the fiscal deficit target of 4.6 per cent during 2011-12, the government is committed to a path of fiscal consolidation.

". . . it would not be correct to say that estimated fiscal deficit is higher by one percentage point as the fiscal year is not yet over. Yes, there are some concerns on the possible slippage in our indicated fiscal balance for 2011-12.

"However, I am committed to pursuing the path of fiscal consolidation and we will strive to do our best in the coming months and years through better revenue mobilisation and expenditure rationalisation," he said.

Calling for bipartisan approach by various political parties, Mukherjee said the government is committed to building consensus on policy issues even if the process in time consuming.

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Image: Prime Minister Manmohan Singh.
Photographs: Reuters
Tags: , Mukherjee , India

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"In a democracy, we have to respect the mandate given to us by the public. If this mandate is to build a consensus, then so be it, even if it takes time. . .

"I am hopeful that we will make progress when we get the opportunity to work together with colleagues across the party line," he said.

Mukherjee added that the Congress party stands for reform "that strengthen our economic fundamentals for sustaining high growth and inclusive development over the medium-to-long term."

Maintaining that India cannot remain insulated from global happenings, Mukherjee said trade performance in the current fiscal has been 'robust' but concerns remain about pressure on the current account deficit.

"We have diversified our export baskets and export destinations. In the first half of 2011-12, growth in exports was 52 per cent and in imports by 32.4 per cent.

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"But slowdown in the global trade will also affect us and even put some pressure on the current balance.

"However, I do not foresee any financing concerns...The macroeconomic variable will hopefully be better in the second half than in the first half," he said.

Asked if the Finance Ministry can do more to inspire confidence and boost investor sentiment, he said it is doing its best.

"We have tried to liberalise FDI in retail and would like to build the required consensus to implement it. Similarly, we hope to follow on our legislative initiatives in the financial

sector. . .We will bridge policy and regulatory gaps," he said.

According to the Finance Minister, such steps, along with better macroeconomic environment, will lead to boosting investors' confidence.

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Regarding the charge that the government has failed to do enough to increase investment in agriculture and boost supply, Mukherjee pointed to the federal system of governance.

"You must recognise that agriculture in a state subject. We can, at best, only facilitate the process," he said.

The minister, however, said that a series of measures have been taken during the last two Union Budgets to boost the sector, like extending the Green Revolution to the eastern states and enhancing production of various items.

"That these measures have had positive impact can be seen from the inflation figures for cereals and pulses over the last two years. . . States have to come forward and draw benefit from the initiatives launched by the Centre in order to better manage our food supply chain," Mukherjee said.


Image: The India Gate.
Photographs: Reuters

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