To rein in prices, the RBI could tweak in policy rates to either suck out money supply or make borrowings costlier.
With major sectors of the economy showing signs of slowdown, the list of those pegging India's economic growth at below eight per cent in the current financial year is expanding.
The RBI governor, D Subbarao had met finance minister Pranab Mukherjee on December 18, fuelling speculation that the monetary policy would be tightened.
The finance minister said figures for second quarter economic growth are yet to come, but industry has started picking up. The Indian economy grew by 6.1 per cent in the first quarter. On inflation, Mukherjee said the government has taken steps to ensure that the adverse impact of inflationary pressures is reduced by strengthening supply management.
The former Governor of RBI said India would see 'definite signs of recovery' in the second half of 2009-10. On growth forecast, he said this fiscal will see a rate of 6 and 6.5 per cent, but it will be higher next fiscal.
The Prime Minister's Economic Advisory Council on Wednesday favoured further increase in petroleum prices in line with the global trend.
According to Jagdish Shettigar, chairman of BJP's economic cell and former member of the Prime Minister's Economic Advisory Council, infrastructure, especially road building, will be a priority. It is now also certain that work on the controversial 111-km Nandi Infrastructure Corridor Enterprise connecting Bnagalore and Mysore will be accelerated. "We have always supported NICE," said a BJP leader.
"India's economic fundamentals are quite robust and its economy remains the second-fastest growing one in the world," the prime minister's Economic Advisory Council's chairman Suresh Tendulkar told reporters in Mumbai. According to him, the financial meltdown in advanced economies 'has been very serious'.
"The Union Budget represents the aspirations of 130 crore Indians and lays out the path towards India's development. I invite you all to share your ideas and suggestions for this year's Budget on MyGov," the PM said according to a statement posted on his official website on Thursday.
It forecast a growth of 9 per cent for 2011-12.
The Prime Minister's Economic Advisory Council on Friday said the economy will grow by 8.5 per cent, up from a projected 8.2 per cent, and inflation will come down from double digits to 6.5 per cent by the end of 2010-11.
Although the economy did well during the second quarter (July-September) recording a growth of 7.9 per cent, the output of agriculture and allied sector slipped to below 1 per cent.
In an interview with Business Standard's Sapna Dogra Singh and John Samuel Raja D, C Rangarajan says there are some encouraging signs in the economy, but the real recovery will come only in 2010-11.
Growth in the six core industries -- crude oil, petroleum refinery products, coal, electricity, cement and finished steel -- in April-March 2008-09 was 2.7 per cent against 5.9 per cent in the previous fiscal. Crude oil production continued to remain in the negative zone as it dipped by 3.1 per cent in April while it had registered a growth rate of 1 per cent a year ago.
The Prime Minister Economy Advisory Council has projected a mere two per cent growth in the sector for the current year. Earlier in August, PMEAC had projected the agriculture production to grow at a lower pace of two per cent in the current year as against 4.5 per cent in 2007-08.
Rejecting IMF and World Bank's "unduly" pessimistic projections, Prime Minister's key economic advisory council chairman C Rangarajan on Thursday exuded confidence that the growth would be around 5.5 per cent in the current fiscal.
The gross domestic product grew by 6.1 per cent in the first quarter of 2009-10 and the year may end with 6.5 per cent.
Projecting 34 per cent decline in foreign capital inflows due to uncertain external environment, the PM's Economic Advisory Council (PMEAC) on Wednesday made a strong case for easing the External Commercial Borrowing guidelines to help corporates borrow funds from overseas debt market.
The Prime Minister's EAC is expected to give its outlook on economy for the current fiscal in a week's time.
The luncheon at his residence was attended by Planning Commission Deputy Chairman Montek Ahluwalia, Chairman of PM's Economic Advisory Council C Rangarajan, former RBI Governor Bimal Jalan, Foreign Secretary Shiv Shanker Menon and officials of the Prime Minister's Office.
The Prime Minister's Economic Advisory Council member G Govinda Rao on Thursday said the Reserve Bank can raise the key rates ahead of its April 20 annual monetary policy to tame the high headline inflation.
The private demand is still not picking up and the funds under market stabilisation scheme are also maturing.
Last year, the Survey suggested a long list of reforms, but most of these found no place in the Budget.
The Prime Minister's Economic Advisory Council (PMEAC) expects the economy to grow by over 7.2 per cent during the current fiscal and exceed 8 per cent in 2010-11, thanks to increased economic activity.
Food inflation is expected to cool off in the next two months from the current high of about 18 per cent on expectation of better Rabi (winter) crop, Prime Minister's economic panel member said.
Last week, the India Meteorological Department downgraded its monsoon forecast to 'below normal'. This has led to fears whether it would affect agricultural output and bring down India's growth in the current fiscal. The agriculture sector contributes around 17 per cent to the gross domestic product and employs around 60 per cent of the nation's total workforce.
The Prime Minister's economic panel on Tuesday said it could revise upward the economic growth forecast to 7 per cent from 6.5 per cent for the current fiscal on the back of robust economic growth in the second quarter.
Prime Minister's Economic Advisory Council Chairman C Rangarajan said on Wednesday the economy was witnessing 'cyclical overheating' but expected inflation to soften in coming months with good monsoon this year.
The committee on financial inclusion, headed by C Rangarajan, the chairman of Prime Minister's Economic Advisory Council, has recommended that the profits transferred to their reserves by such banks should be exempted from tax till the banks achieve the standard capital adequacy ratio (CAR).
Slower growth in the developed world is expected to impact emerging economies like India by reducing demand for their exports in rich country markets.
On an average, PMEAC said economic growth could be around 6.5 per cent.
Having recorded about 9 per cent growth rate in three consecutive years since 2005-06, India's growth rate fell to 6.7 per cent during 2008-09 on account of the impact of the global financial crisis. India recorded a growth rate of 6.1 per cent during the first quarter of this fiscal.
The Prime Minister's economic panel on Wednesday said the government needs to draw a programme to rein in the fiscal deficit of over six per cent which is not sustainable.
The Reserve Bank of India has forecast the economy to grow by 6 per cent with an upward bias.
The Shanghai Stock Exchange has registered maximum fall (56 per cent) from its peak, while the benchmark index of the Bombay Stock Exchange dipped by as much as 40 per cent and the Manila Stock Exchange dropped by 39 per cent, registering the third largest fall. The report added that 'having lost one fifth to one third of their value, equity assets would appear to have greater upside rather than down side prospects.
Announcing the decision after the meeting of the Cabinet Committee on Economic Affairs, Finance Minister P Chiadambaram said this is an ad-hoc measure and the recommendation of Commission for Agricultural Costs and Prices has been referred to the Prime Minister's Economic Advisory Council. The CACP had recommended the paddy MSP at Rs 1,000 per quintal for 2008-09 Kharif season.
Inflation has come down to nine-month low of 6.84 per cent for the first week of December from a high of 12.91 (provisional) per cent in August following a series of fiscal and monetary measures taken by the government and the apex bank. Besides, the oil prices also fell, easing the rate of price rise.
The Reserve Bank may raise key policy rates by up to 50 basis points in its July 27 monetary policy review to check double-digit inflation, said a member of the Prime Minister's Economic Advisory Council.
Committee of secretaries is working on the formula and it is understood that EAC is also being asked to go through the formula.
Higher economic growth can be sustained only in an atmosphere of reasonable price stability
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