New Delhi: India’s economic recovery is still being driven by public spending and is not yet broad-based, the finance minister said on Wednesday, further clouding the debate on the timing of rate hikes by the central bank.
Asia’s third largest economy is forecast to expand 7.2% in the year to March 2010, helped by stimulus measures and government spending, recovering from a six-year low in the previous year.
Analysts expect the Reserve Bank of India to hike rates by April, after the government began exiting its stimulus measures during the federal budget on Friday and as inflation remains stubbornly high.
But there has been pressure on the central bank to hold rates steady to help nurture growth in India back to the 9% or more seen in the recent past.
“I hope that this budget will help us consolidate the gains from the recovery process,” Pranab Mukherjee told a business conference days after presenting his budget for 2010-11.
“However, there is no room for complacency regarding our economic growth. Recovery continues to be driven by the government’s stimulus spending and is not completely broad based.”
The government has projected growth of around 8.5% in 2010-11, accelerating to 9% in the year after.
Mukherjee’s budget for 2010-11 hiked factory gate taxes cut in the wake of the economic slowdown.
Analysts said a budget proposal for a record market borrowing of $99 billion in the year to March 2011, would keep the pressure on the central bank to be more aggressive in its monetary tightening.
On Wednesday, Mukherjee said the government was taking steps to bring down food inflation, which was at 17.58% in mid February, in the next few months.
He said he was confident of a pick up in GDP growth during the March quarter, after growth came in at 6% during the December quarter, below market expectations.