India must now turn its attention to reviving growth as quickly as possible, said the Finance Minister, Mr Pranab Mukherjee.
Asserting that the present downturn will be temporary, Mr Mukherjee told an international conference on ‘Economic Policies for Emerging Economies' here on Wednesday that he expects the Indian economy to soon revert to high growth trajectory.
He said that the country's fight against inflation had also taken a toll on investments by Indian corporations. Policymakers have recently faced criticism over their inability to tame inflation despite 13 successive policy rate hikes by the RBI since March 2010. India Inc feels that spurt in interest rates are a part reason for the decline in industrial output.
A series of negative news including sharp contraction in industrial output for October 2011, slowdown in GDP growth in second quarter has cast a shadow over the economy's growth prospects this fiscal.
India's GDP grew 6.9 per cent in second quarter ended September, the slowest quarterly growth in the last two and a half years.
The index of industrial production (IIP) declined 5.1 per cent in October 2011. This sharp decline is partly a reflection of the global trend, Mr Mukherjee said.
The Finance Minister also noted the current trend of increased capital outflows, which he described as a “matter of concern” as it led to increased currency volatility.
“We have witnessed sharp depreciation of the rupee vis-à-vis the US dollar in the last few months. Slowdown in external demand has led to deceleration in the growth of exports in recent months with the current account deficit widening to around 3 per cent of GDP,” he said.
He highlighted that the world economy was passing through turbulent times. Recovery from the global economic crisis has been staggered because of a complex mix of real and financial challenges facing many industrialised economies.
The Indian economy is, in some ways, better placed than many other nations to withstand a fresh round of global economic turmoil, he said. India's resilience results from the fact that the bulk of India's GDP is driven by domestic demand, Mr Mukherjee said.