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Slowdown to hit economy, inflation to moderate soon: FM

Last updated on: October 19, 2011 15:09 IST

Image: Finance Minister Pranab Mukherjee.
Photographs: Reuters

Finance Minister Pranab Mukherjee today said the global slowdown will impact India's growth prospects, but expressed hope that inflation will start moderating from December.

However, he maintained that the Indian economy growing at 8 per cent, down from 8.5 per cent in 2010-11, will still be a "reason for celebrations".

Referring to the growth prospects for the current financial year, the minister said it would be impacted by the global economic slowdown.

"The news that India would grow annually at 8 per cent would be a reason for celebrations," he said at the annual conference of Economic Editors in New Delhi.

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Slowdown to hit economy, inflation to moderate soon: FM


Photographs: Reuters

Mukherjee attributed both the economic slowdown and rising inflation to global economic problems, especially the rising price of crude oil in international markets, which has remained high at around USD 105 a barrel.

He attributed near double-digit inflation mainly to rising global commodity prices. "Inflation remained sticky around 9 per cent... I expect the overall WPI inflation to decline from December and I am hopeful that we will end the fiscal with 7 per cent," he said.

Despite monetary measures taken by the Reserve Bank since March, 2010, headline inflation has remained stubbornly close to the double-digit mark.

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Slowdown to hit economy, inflation to moderate soon: FM


It was 9.78 per cent in August. Moreover, he added, the tight monetary policy followed by the RBI has also impacted growth during the current fiscal.

The economy recorded a growth rate of 7.7 per cent in the first quarter (April-June 2011-12), the lowest in 18 months. In a bid to contain inflation, the RBI has raised key policy rates twelve times since March, 2010.

Eight per cent growth in 2011-12 will be a cause for celebration, says Pranab Mukherjee.

Foreign direct investment in April-August doubled to USD 16.8 billion, said Mukherjee.

Slowdown to hit economy, inflation to moderate soon: FM


"The steady rise in policy rates was reflected in borrowings as well as lending rates with a lag," the Finance Minister said, adding that though reserve money growth witnessed a deceleration, broad money growth remained above the indicative trajectory in the current fiscal.

According to Mukherjee, food inflation has significantly dropped from a peak of 20 per cent in February, 2010, to about 8 per cent in June-July 2011.

The minister pointed out that the source of inflation has now switched to non-food items due to imported global commodity inflation -- in particular, crude oil.

About lowering the economic growth projections for this fiscal by experts, Mukherjee said, "Most observers are expecting India's growth to go down to below 8 per cent. This is disappointing, but at the same time, we must not lose perspective of the global situation. There is a slowdown all over the world."

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Slowdown to hit economy, inflation to moderate soon: FM


On the government's response to the situation, he said, "A number of policy measures are being taken and fortunately, the long-run indicators look robust."

"Credit offtake is also showing health trends. Last year, from April to September, bank credit grew by 19.2 per cent, which is 19.5 per cent in the same period this fiscal," he said, adding that services have done well and agriculture is expected to grow at 3 per cent this fiscal.

"I am sure these factors would sustain growth," he said.

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Slowdown to hit economy, inflation to moderate soon: FM


Mukherjee exuded confidence that the good monsoon this fiscal would result in higher farm output, which would help arrest inflation.

"During 2011, the cumulative rainfall over the country was above normal... Production of kharif foodgrains during 2011-12 is estimated at 123.88 million tonnes, compared to about 120 million tonnes in 2010-11.

This augurs well for supply side response to arrest inflation in food items," the minister said.

About the measures taken by the government for fiscal consolidation, Mukherjee said, "Fiscal policy stance for 2011-12 remained broadly on the consolidation track, complementing the monetary policy stance. We presume a 4.6 per cent fiscal deficit this fiscal."

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Slowdown to hit economy, inflation to moderate soon: FM


"With the crude prices remaining where they are, it will be a great challenge to maintain the fiscal deficit numbers at 4.6 per cent this year," he said.

However, Mukherjee assured, "We will make strenuous attempts to keep the fiscal deficit at around these numbers. We would be closely monitoring the revenue and expenditure trends and take steps as deemed appropriate."

On the black money menace, he said, "Due to our sustained efforts in the last two years, both domestically as well as internationally, we have been successful in creating an environment where a regular flow of banking information has started."

The government received over 9,900 disclosures on suspicious transactions by Indian citizens from several countries, which are now under different stages of processing and investigation, the minister informed.

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