Prime Minister's Economic Advisory panel chief C Rangarajan today said the economic growth rate in 2011-12 could be over 7 per cent, slightly higher than the projection of the Central Statistical Organisation.
"If industrial production picks off in the current quarter, then I will not be surprised if the final or revised estimate is 7 per cent or more than 7 per cent," Rangarajan, who is the Chairman of the Prime Minister's Economic Advisory Council, said.
His comments came after the Central Statistics Office (CSO) announced India’s Advanced GDP Estimates.
India’s gross domestic product (GDP) growth is expected to be lower than 7 per cent at 6.9 per cent, according to advance estimates for the year ending March 2012. This is the slowest growth after 2008-09 when India registered a growth rate of 6.7 per cent.
CSO said, was mainly due to sharp slowdown in manufacturing, agriculture and mining sectors, against 8.4 per cent expansion in the last fiscal.
"The numbers (in Advanced Estimates) are below 7 per cent but my expectation is that when the final estimate comes it will be more than 7 per cent for this fiscal," Rangarajan said.
The Indian economy had expanded by 8.4 per cent in both 2010-11 and 2009-10, while growth in 2008-09 was 6.7 per cent.
As per the data, agriculture and allied activities are likely to grow at 2.5 per cent in 2011-12, compared to a robust growth of 7 per cent in 2010-11.
"There may be slow growth in the sectors of ‘agriculture, forestry and fishing’ (2.5 per cent), manufacturing (3.9 per cent) and construction (4.8 per cent). The growth in the mining and quarrying sector is estimated to be negative (-2.2 per cent),' the government release said.
Manufacturing growth is also expected to drop down to 3.9 per cent in this fiscal from 7.6 per cent last year.
Rangarajan also pointed out the increasing vulnerability of the markets to adverse events. He said that close interdependence among markets and market participants have increased the potential adverse events to spread quickly. “Recent innovation in the financial system has sought to increase the short-term profitability of financial sector. Some of new innovation has endangered financial stability,” he added.
“We are living in the world of uncertainty. Customers need to protect themselves from exchange rate and currency volatility,” he said.
However, he felt that the pressure on the rupee will ease as capital flows resume. “The mismatch between current account deficit and capital inflows caused rupee to fall sharply,” he explained.
“We must work towards achieving a lower level of current account deficit,” he added.
On banking system, Rangarajan feels that the regulatory system needs to be restructured to make it more sound. “Excessive risk taking and leveraging needs to be discouraged by regulatory measures,” he clarified.
He further said that in developing countries like India, the structure of economy is undergoing a rapid change and there is a need to encourage emergence of vibrant corporate debt market.
According to him, capital control in the context of recent financial crisis is a temporary measure. “The best policy option is strong economic growth economic, growth which can absorb larger inflows,” he said.
The current estimate is sharply lower than the 9 per cent growth projection for 2011-12 made by the government in its pre-Budget survey in February last year.
The latest GDP growth estimate of 6.9 per cent for the entire fiscal means the pace of economic expansion has slowed in the second half of 2011-12, given that GDP growth in the April-September, 2011, period stood at 7.3 per cent.
The government and the RBI had earlier said that global economic slowdown and the high domestic interest rate regime is likely to act as a dampener in growth during the current fiscal.
However, the 6.9 per cent growth projected in the advanced estimates is lower than what experts have been forecasting.
(With inputs from PTI)