The Telegraph
Since 1st March, 1999
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PM panel predicts 9% growth
Inflation upper limit set at 4.5%

New Delhi, July 16: The Prime Minister’s economic advisory council expects growth to moderate to 9 per- cent in the current financial year from 9.4 per cent in the last fiscal.

In its economic outlook for 2007-08, the panel said it expected inflation to remain between 4 and 4.5 per cent. The panel is headed by former RBI governor C. Rangarajan.

Inflation for the week ended June 30 stood at 4.27 per cent.

While releasing its annual policy statement back in April, the Reserve Bank had articulated its desire to bring inflation within a band of 4 to 4.5 per cent but didn’t actually spell out a deadline by when this would happen.

The nuancing on inflation has now clearly changed — from a vaguely-stated desire to a clearly-enunciated goal.

During 2006-07, the government and the Reserve Bank had undertaken a slew of measures to cap inflation within a band of 5 to 5.5 per cent even as many economists argued that small doses of inflation would fuel economic growth.

With inflation turning into a hot-button issue that saw the ruling Congress-led coalition losing four key state elections earlier this year, finance minister P. Chidambaram had said he would target a 4 per cent inflation rate. The panel's endorsement of the new lower inflation and economic growth targets reflects the new political realism as opposed to mere economic goal-setting.

“I expect growth to be a shade lower than in the previous year but still very robust,” said Rangarajan. The panel’s projections were conditional on the monsoon behaving itself and petroleum prices not shooting up beyond expectations.

Rangarajan said sectoral growth would be slightly lower with farm sector growing at about 2.5 per cent, industry by 10.6 per cent and services by 10.4 per cent.

The high-powered panel also forecast that if growth rates remained above 8 per cent, all Indians in the working age group would be absorbed within the labour force.

However, Rangarajan cautioned that this did not guarantee creation of “quality jobs”, that is to say not everybody would get jobs suited to their skills.

Many economists disputed the forecast. “I think there is a flaw in the data on the basis of which this fantastic calculation has been done .... the ground reality does not show this,” said S. P. Gupta, former member of the Planning Commission.

The report said export growth was expected to slow down to 18 per cent in dollar terms in the wake of a stronger rupee.

The panel projected foreign direct investment of $15 billion in 2007-08 against $8.4 billion last fiscal.

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