Amid a difficult global economic scenario, India’s GDP growth will slow down to 8.2 per cent in the current fiscal and the inflation rate is expected to remain high at 9 per cent till October, the Prime Minister’s Economic Advisory Council said today.
In its report on the state of economy, the PMEAC said: “The projected growth rate of 8.2 per cent, though lower than the previous year, must be treated as high and respectable given the current world situation.”
It further said that the global economic and financial situation was unlikely to improve (in the foreseeable future) and this could impact the domestic economy.
The Indian economy grew 8.5 per cent in the last fiscal ended March 31, 2011.
The PMEAC’s projection for 2011-12 is higher than the 8 per cent growth forecast made by the Reserve Bank of India in its annual monetary policy, but it is lower than the Government’s target of 8.5 per cent.
On inflation, the PMEAC said that it was likely to come down to 6.5 per cent by March 2012, but would remain high at 9 per cent till October.
“There will be some relief starting from November and (inflation) will decline to 6.5 per cent by March 2012,” it said.
Hinting at further interest rate hikes, the PMEAC also said the RBI would have to continue with its monetary tightening policy measures to contain inflation.
The central bank has already hiked benchmark rates 11 times since March 2010, as part of efforts to tame inflation.
Headline inflation has been above 9 per cent since December 2010.
To contain inflation, the PMEAC suggested that the Government liberally release food stocks.
“Important role for fiscal policy (is) to contain demand pressure. (There is also) need to ensure that the fiscal deficit does not exceed the budgeted level,” it said.
The PMEAC asked the Government to increase its efforts for revenue collection and to reduce cases of tax arrears.
It also suggested minimising avoidable expenditure and resolving the issues with states that are holding up the introduction of Goods and Services Tax (GST).
The PMEAC report also said that capital flows this fiscal were likely to rise to $72 billion from $61.9 billion in 2010-11.
The FDI inflows were projected at $35 billion, up from $23.4 billion in 2010-11. However, the FIIs were likely to infuse just $14 billion, less than half of the $30.3 billion they pumped into the country in the previous fiscal.
Among the key concerns for the economy, the PMEAC said there was disparity among the states in terms of growth.
For the power sector, it called for reforms and immediate policy measures to ensure coal availability, smooth land acquisition and environment clearances.
It also pitched for food security by way of providing a legal entitlement to the poor to subsidised food through appropriate legislative measures.
It also called for reforms in the PDS (Public Distribution System) by way of computerisation, introduction of smart cards and use of unique identification numbers.