Dr.
Arvind Virmani, Chief Economic Advisor, Department of Economic Affairs,
Ministry of Finance strongly reiterated that the economy would achieve
the average growth rate of 9% targeted for the eleventh five-year plan.
Dr
Virmani said that 9% growth in GDP in the current five year plan is
required to reduce poverty and generate jobs. He was addressing a
conference on `state of the Indian Economy? arranged by the CII in
Chennai, wherein he highlighted the underlying strengths of the economy
in the face of current economic trends, including fuel and commodity
prices, and the implications of these on domestic inflation. He placed
the growth rate of GDP for the current fiscal 2008-09 at 8% to 9%, more
likely at the bottom of the range, against the prediction of 7-.5%-8%
for GDP growth made by Dr. C. Rangarajan.
The assertion comes
just two days after Prime Minister?s Economic Advisory Council Chariman
C Rangarajan has indicated that India?s GDP growth may moderate to
7.5-8% in the current fiscal. Infact, this estimate is lower than 8%
projected by RBI in July 2008, which itself was lower than 8 to 8.5%
growth expected by RBI in April 2008. Rangarajan indicated that there
are certain domestic and external factors, which may add to further
slowdown in the growth rate. As regards inflation, which is close to
12% now, Rangarajan indicated that it would moderate to around 8% by
the end of the current fiscal. In the process, India?s GDP growth is
set to decelerate for the second year in succession. It has already
come down to 9.0 % during 2007-08 from 9.6 %in 2006-07.
Dr
Virmani expects the inflation to come down to 5-6% within a year?s time
from now. On the flipside, Dr Virmani said, Commodity Experts are not
certain whether oil prices will decline or rise in future, even though
it has decreased in last two weeks. Further he added that the inflation
in the country was largely due to global factors as well as level of
inflation was comparatively lower than other major countries of the
world.
Elaborating the growth chronicle of the Indian economy
since 1950-51, he divided it into three main phases and sub-phases. In
the first phase during 1950-51 to 1979-80, growth rate hovered around
an annual average of 3.5%; which is also called as the ?Hindu Rate of
Growth.?
The second phase, starting from 1980-81 to 1993-94,
has recorded more impressive annual average of 5.5%. Dr Virmani has
marked the start of third phase of growth from 1994-95 but he said that
there is a question here, as to when this third phase of high growth
will end. The growth has accelerated to an average of 6.8% per annum
during this third phase period of 1995-96 to 2006-07. But he said that
now we are in an inflextion point, and it is an important question as
to how long we can sustain this strong growth?
The third phase of growth has enabled India to emerge as the third largest country on PPP basis, Dr Virmani pointed out.
Dr
Virmani believed that the current high growth has come from increased
investment in machinery and optimum utilization, robust growth in
consumption both private as well as government, increase in saving
rate, higher inward FDI etc. He added that the inward FDI inflow in the
country was US $ 32 billion against a estimated target of just US $ 10
billion in last financial year.
Incremental expenditure required
on implementation of 6th Pay commission recommendations on Government
employees and some off balance sheet items like Oil bonds, Fertilizer
bonds etc weighs high on fiscal deficit. Nevertheless, healthy growth
in revenues would still help the government to meet the FRBMA targets.
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