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Seal on growth slowdown

New Delhi, Dec. 23: The government is prepared for a 7 per cent growth this fiscal though falling inflation has provided a case for rate cuts to push up the pace.

Tabling the mid-year review of the economy, minister of state for finance Pawan Kumar Bansal said it was difficult to make a “precise forecast” and the growth expectation was in the range of 7-8 per cent. “We have to be prepared, however, for growth to be around 7 per cent.”

He considered the growth of 7.8 per cent in the first half as “fairly robust”.

“However, it (growth) is likely to be significantly slower in the second half as the impact of slower export growth and weaker domestic demand, including a possible dampening of private investment, becomes visible,” the minister said.

After rising around 9 per cent both in 2006-07 and in the last fiscal, growth was expected to fall this year. The government has forecast a range of 7 per cent to 7.75 per cent, with a bias towards the upper end.

In its suggestions about future policies, the review said, “An aggressive monetary policy may be necessary if the global economic depression continues to adversely affect manufacturing.”

It said there was considerable scope for the policy-makers to go easy on monetary issues in the light of the tight liquidity regime in the first half of this fiscal.

Suresh Tendulkar, chairman of the Economic Advisory Council to the Prime Minister, said in Mumbai that it was up to the RBI to cut rates. “It is desirable to reduce the repo and the reverse repo rate, I think, by 100 basis points in my judgement.”

The repo and reverse repo rates are the RBI’s short-term lending and borrowing rates, respectively, vis-à-vis banks. They determine interest rates of commercial banks.

The review said that in the face of the global slowdown and slackening of investment and demand, the way forward was to accelerate pending policy reforms.

After the announcement of the review, chief economic adviser to the finance ministry Arvind Virmani said the fiscal deficit would be at least 5 per cent of the gross domestic product, which was way above the target for the fiscal.

US contraction

In its final estimate, the US authorities said the American economy had shrank 0.5 per cent in the September quarter. In the first estimate, the contraction was 0.3 per cent.

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