'Slowdown will continue in Oct-Dec quarter'

India may end the financial year with a seven per cent GDP growth rate, as the economic deceleration is expected to continue in the third quarter, said Montek Singh Ahluwalia, deputy chairman of the Planning Commission.

"So far, we are not sure whether in Q3 the deceleration will end. The October Index of Industrial Production (IIP) was not good, but seven per cent will still be a very good performance compared to what is happening elsewhere," he said while delivering the third M Visveswaraya Memorial Lecture, organised by the World Trade Centre here.

The pace of economic growth has been downward since the first quarter of this financial year. GDP grew 7.7 per cent in the quarter ended June. With the global uncertainty and domestic conditions, it moderated further to 6.9 per cent in the July-September quarter.

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According to the Reserve Bank of India, the deceleration in economic activity in the second quarter was mainly on account of a sharp moderation in industrial growth. Overall, during the first half (April-September) of 2011-12, GDP growth slowed to 7.3 per cent from 8.6 per cent over the same period last year.

Ahluwalia said the Commission was going ahead with the nine per cent growth projection for the 12th Plan period as a whole, though the country may not return to that figure next year.

He said the earlier long-term projections for India held good, as the economy remains under-invested as compared to the saturated economies of the West and the heavily invested economy of China.

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The finance ministry has already indicated that a 4.6 per cent fiscal deficit may be a huge challenge to meet. Ahluwalia said the Union Budget for 2011-12 had been presented with a nine per cent growth assumption and a deceleration was bound to impact the fiscal deficit.

However, the deficit could be improved by quick tax reforms. "The Goods and Services Tax can greatly contribute in bridging deficit. Consensus has not been achieved but the states' views are converging," he said.

Defending the intended Food Security Bill subsidy, he said it was a targeted one and the incremental allocation only Rs 21,000 crore (Rs 210 billion).

He advocated removal of the petroleum subsidy and various other non-targeted subsidies, adding the government was pondering the merits of the cash transfer scheme as well.