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Indian GDP growth in FY12 seen at 7pct: C Rangarajan

Prime Minister's Economic Advisory Council chairman Mr C Rangarajan said that India's GDP growth is likely to decline to 7% to 7.25% this fiscal from 8.4% in FY11 due to slackening industrial output and slowdown in global economy.

He also said government will not be able to stick to the fiscal deficit target of 4.6% of GDP this fiscal.

Mr Rangarajan at an Assocham meet said that “The overall growth rate in industry will be well below the initial expectations. The world economic situation is also not very encouraging. Under these circumstances, the growth rate during the current year may be between 7% and 7.25%.”

Initially, the Prime Minister's Economic Advisory Council had projected the GDP during FY12 at 8.2%.

Mr Rangarajan, however expressed hope the GDP growth may turn out to be better in FY13 due to likely decline in inflation, improvement in infrastructure and greater clarity on issues like land acquisition and environment.

He further said the broad macro economic parameters relating to savings and investment are conducive to achieving a growth rate of 8 to 9% in a sustained manner.

He said for a sustained high growth, inflation must be tamed and fiscal deficit contained. He added that "Inflation continues to remain an area of concern in the current fiscal...We must use all of our policy instruments... to bring down current inflation and re anchor inflationary expectations to the 5% comfort zone.”

As the inflation showed signs of moderation in December, he said that "Perhaps, the headline inflation will come below 7% by March 2012".

Mr Rangarajan further said that "We, however have to bear in mind that the rationalisation process in the pricing of petroleum products is still to be completed and, as and when this happens, it will impact overall inflation.”

On the fiscal deficit target of 4.6% for this fiscal, he said that "Perhaps this is difficult to achieve, adding to gain credibility, it is important that fiscal deficit remains close to this level.”

Over the medium term, the government should draw up an appropriate road map to reach the FRBM (Fiscal Responsibility and Budget Management) target of 3% of GDP.

Mr Rangarajan added that "We must focus particularly on reducing the overall level of subsidies as a proportion of GDP.”

The industrial output measured on IIP has been below 5%, August and September and in the following month contracted by 5.1%, while there was an uptick in November IIP, the data for December will be released in the second month of February.

Mr Rangarajan further said the mismatch between Current Account Deficit and capital flows has put pressure on rupee, which has weakened against the US dollar.

He said that "The current account deficit in the current year may turn out to be higher than last year. Efforts must be made to keep the CAD around the manageable level of 2.5% of GDP.”