New Delhi: India’s economy will accelerate in the coming years as it recovers from the global downturn and the government will act to protect the poor from the impact of food inflation, the President said on Monday.
Pratibha Patil said the economy was likely to grow about 7.5% in the current fiscal year ending in March, and the government would aim for annual growth rate of 8% in the next fiscal year and 9% in 2011-12.
“It is imperative that as our economy grows apace, the disadvantaged sections of society be made part of the Indian success story,” Patil said in a speech opening the budget session of Parliament.
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Asia’s third-largest economy is recovering, with factory output surging, but food prices are growing at the fastest pace in 11 years and the government fears a backlash from millions of rural poor who are its main voters.
The President’s annual speech, which lays down the priorities of the government for the year, reflected those concerns over inflation as food prices keep rising at an annual rate of nearly 20%, primarily because of a poor summer harvest.
“In the longer term, our food security can be ensured only through sustained efforts at increasing agricultural productivity combined with a comprehensive reform of the public distribution system and open market intervention,” Patil said.
“My government is committed to bringing forth legislation to ensure food security.”
Rising prices have sparked opposition-backed street protests and left the government little elbow room to push through financial reforms such as easing fuel price controls. But the ruling Congress party faces no risk of losing power anytime soon.
The Prime Minister’s Economic Advisory Council last week said surging food prices threatened to fan broader inflation and endanger the economic recovery.
Signs of divergence in views between the government and central bank over the best policy balance have emerged, with the bank increasingly concerned about inflation while the government insists policy focus must remain on economic recovery.
With growing evidence of economic recovery, including a record 16.8% jump in factory output in December, the government is under pressure to rollback the fiscal stimulus deployed to soften the impact of the global financial crisis.
The government has signed off about Rs1.86 trillion ($40 billion) in tax concessions and a further $4 billion in new spending since 2008, straining the deficit and borrowing.
Analysts expect finance minister Pranab Mukherjee to announce the expiry of some of the emergency measures in the budget speech as he looks to cut the fiscal deficit, which is on track to balloon to a 16-year high in the current financial year.
Patil did not mention stimulus withdrawal in his speech. The speech also made no reference to a government panel’s recommendation to remove or relax price controls on various fuels, possibly signalling that the government believed Indians were not ready yet to pay the cost of market liberalization.