New Delhi, Feb. 7: India will have its best growth rate in 18 years with the economy projected to grow 9.2 per cent in fiscal 2007 which ends in March. But unlike Reserve Bank of India governor Yaga Venugopal Reddy, the finance ministry mandarins aren’t spooked by fears of an overheating economy — at least not just yet.
“Is 9 per cent too high' I don’t think so,” Ashok Lahiri, the government’s chief economic adviser, said. “Does high growth entail overheating, my answer is an emphatic no.”
The Central Statistical Organisation today made the forecast of 9.2 per cent that topped the 9.1 per cent estimate made for the first half of this fiscal. The high rates are expected to be powered by the boom in the manufacturing and the services sector.
The great numbers are still a tad behind the figures for China, which is expected to grow by over 10 per cent this year after clocking 10.7 per cent in 2006.
The black spot is the farm sector which has been forecast to grow at just 2.7 per cent, whereas it increased by 6 per cent in the previous year. Yields of staples, which have reached a plateau, and indebtedness among farmers have blighted agriculture for several years now.
The other issue of concern is that jobs have missed the growth bus. Employment growth has just been 1 per cent. “It’s a jobless growth saga, that’s the sad part of it. There is a whole section of the populace who are missing out,” S.P. Gupta, former member of the Planning Commission, said.
Notwithstanding the job blues, the manufacturing sector is expected to grow by a spanking 11.3 per cent compared with 9.1 per cent a year ago and services, which make up more than half of the GDP, by 11.2 per cent against 9.8 per cent.
The government is not tense about overheating but jittery over the inflationary pressures generated by a growing economy.
It is widely expected that the RBI would again raise the cash reserve ratio (CRR) of banks to put a squeeze on liquidity, so that inflation is under check.
The prices of both essential commodities as well as that of manufactured items have been shooting up on the back of a splurge in consumer spending brought about by a 30 per cent growth in credit — the highest in three decades — lofty increases in salaries and a higher spending among the rural population.
Economists expect the consumer demand to rise further as the salary spike in India is seen at 7 per cent by human resources consultant ECA International, which is the highest in the world.
Despite a rise in the interest rate, money supply and credit will also continue to swell on account of the huge inflow of foreign exchange in the form of higher FDI, earnings by software firms and remittances by expatriates.
“Some $9 billion in foreign direct investment and $23 billion in NRI remittance inflows have simply added to the money supply pressure within the domestic economy,” officials said.
They said new policies are in order to spur “the export of capital out of India so as to maintain an equilibrium in Indian markets.”