FM sees 7.75% growth

The finance ministry on Friday projected a GDP growth upwards of 7.75% for 2009-10, hopeful of clocking a better performance in industry and service sectors in the second half of this fiscal. “The growth outlook for the next two quarters and for the whole year is likely to be in the upper bound of the range predicted and may even exceed it,” the mid-year review of the economy, presented in Parliament by finance minister Pranab Mukherjee, said. In the economic survey for 2008-09 released in July 2009, the government had projected a GDP growth of 7% for this year give or take 0.75%. However, with the robust performance in the second quarter (July-September) at 7.9% against all expectations, backed by similar industry data, the government expressed optimism of carrying on the upward curve while hinting at continuance of its three stimulus packages announced since December last year. “The country has managed to minimize the knock-on effects of the global crisis of 2008 due to timely and appropriately calibrated policy to register recovery in growth,” the review said, adding that the timing and pace of the exit should depend on the recovery. The finance ministry said the Reserve Bank needs to withdraw the easy money policy gradually and in a calibrated manner so as to ensure sustained economic recovery and contain inflationary expectations. The review expressed concern about rising food inflation that has grown to 20% for the week ended December 5. “The rise in prices of primary articles of consumption of the common man that has been occurring in recent times is indeed a cause of concern, and this needs to be attended on an urgent basis,” the review stressed. It said the central bank is currently facing the dilemma of when to exit from its expansionary monetary policy stance. “If it raises the interest rate at this juncture, ahead of other central banks, the move could attract more capital inflows thus complicating the policy making process further,” it added. The challenge is to support the recovery process without compromising on the price stability and through a careful management of trade-offs, the report said. Defending the RBI move to increase the provisioning requirements to the commercial real estate sector classified as “standard assets” from 0.40% to 1% in its October review, the finance ministry said this was meant to allay the fears of creation of asset price bubbles. In its October policy review, the central bank had also raised the statutory liquidity ratio (SLR), the portion of funds banks invest in government bonds, by one percentage point to 25% hinting at gradual withdrawal of its expansionary monetary policy.