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PMEAC pegs growth rate at 7.5 to 8%

For the first time an official agency, the Economic Advisory Council to the Prime Minister has said that the economy is likely to grow between 7.5 to 8% during 2012-13. On the other hand, it has revised the growth estimate for the current fiscal upward to 7.1%

Dr C Rangarajan chairman of PMEAC said that "We might be able to achieve 8 per cent growth. If the world environment is favorable, we will be able to achieve high growth rate." However, he believed that the situation in Europe is still fluid but expected the US economy to do slightly better next year.

Talking about the growth scenario for current year, the Council said that the new projection is marginally higher than the projection of 6.9% as agriculture and construction are expected to do well than the earlier estimates. All other sectors performances are expected to remain the same.

The good news is about inflation where the Council found that the headline inflation has shown decline since November 2011 and more strongly in January 2012. It is projected to be around 6.5% at the end of March. It assumed that both monetary and other public policies seem to have had the desired effect.

Dr Rangarajan advised the Reserve Bank of India to look at February inflation number before taking any call on easing or expanding liquidity in the system. However, he favoured ‘Open Market Operation’ in place of reduction in Cash Reserve Ratio for expanding liquidity in the system. The RBI reduced the CRR by 0.5% last month to infuse INR 32,000 crore into the system.

The Council expects inflationary pressure to continue to ease through 2012-13 and will remain around 5 to 6% for the year. It has called for keeping vigil on food prices and to focus on production as well as rolling out adequate food logistics network.

On the external front, the council believed that for the year as a whole the Balance of Payment position will be tight. This clearly indicates the need to keep the Current Account Deficit within limits. CAD has weakened, averaging 3.6% of GDP in the first half of 2011-12 that is projected to be 3.6% for the year as a whole.

Dr Rangarajan expects the CAD for 2012-13 to be around 3%. In this regard, he particularly mentioned about making various financial assets more attractive, so that the demand for gold will be less.

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