Indian economy set to pick up, over 7% growth: top advisor
By Penny MacRae ,AFPNEW DELHI -- India's economic growth is poised to speed up in the next fiscal year while the tide has turned against inflation, the government's top economic adviser said Tuesday in an upbeat forecast.
February 2, 2012, 12:15 am TWN
India's economy has slowed under the brunt of 13 interest rate rises since March 2010 as the central bank has sought to tame inflation from near double-digits to its current two-year low of 7.47 percent.
“We have definitely turned the corner on inflation,” Kaushik Basu, the chief economic adviser to the finance ministry, told reporters in New Delhi, predicting it would fall to below seven percent.
“And we are at an inflection point where we are poised to turn around” on growth, Basu said.
He forecast growth of “a little bit above seven percent” for the current financial year which ends on March 31 — broadly in line with government projections.
Growth of Asia's third-largest economy next year will be higher “although not by a large measure,” Basu said.
He would not specify a figure but the chairman of the Prime Minister's Economic Advisory Council, C. Rangarajan, said growth in 2012-13 was expected to be between 7.5 percent and eight percent.
The forecast of faster growth and lower inflation will come as welcome news to the national Congress ruling party, which is facing elections in five states.
Inflation has caused huge hardship for India's poor masses, the party's key support base, and heaped pressure on the Congress-led government which has also been reeling from graft scandals and charges of economic reform paralysis.
India's economy grew by 8.4 percent in the last fiscal year to March 31, 2011, the government announced on Tuesday, shading down the figure from a previous 8.5 percent estimate.
Basu said recent stronger industrial production figures were indicators of India's growth turnaround along with data showing factory output growth in December surged to a six-month high.
He added that the central bank had “given very clear indications” that its rate-hiking cycle had peaked.
The bank earlier this month moved to release billions of dollars to commercial lenders in a policy shift designed to boost slackening growth and analysts expect the first interest rate cut to come in March or April.
Basu forecast inflation would be 6.5 to 6.8 percent by the end of the fiscal year and remain at “tolerable levels” thanks to increased food supplies and lower global commodity prices.
Basu added that India's long-term growth potential was around 8.6 percent — a pace at which the economy grew for much of the last decade.
But “as long as that European cloud (the debt crisis) is hanging over us we will not be able to go back to our long-term growth levels,” he said.