Growth forecasts to be revised downward, hints Kaushik Basu

Growth forecasts to be revised downward, hints Kaushik Basu

New Delhi: Describing the current level of inflation as “unacceptable", chief economic advisor in the finance ministry Kaushik Basu on Thursday indicated the government will revise downward the growth forecast for 2011-12. According to the government’s forecasts given in the Budget, Indian economy was projected to grow by nine% in the current fiscal (2011-12), against 8.6% in the previous year.

However, the Reserve Bank has reduced the growth estimates to 8% in the face of tight monetary policy to check the near nine% rate of inflation.

“All over the world there has been revision (growth prospects)..So we might go in for a revision. Obviously, it is not going to be upwards," Basu told reporters.

Several multilateral agencies has revised the growth forecast for India downward for the current year. While IMF has lowered the projection to 8.2% from 8.4% for 2011, ADB said India’s growth will slow to 8.2% in 2011-12, from earlier estimated 8.7%, on high oil prices.

While the government generally takes a mid-year stock of the economy, the finance ministry would begin reviewing the targets by the end of this month, he said.

While stating inflation remains at “unacceptably high" level, Basu said “I am expecting it will dip down a bit".

The general inflation for March was 8.98%. Basu said the inflation for April would be “definitely below nine%" while not indicating the level.

However, Basu’s optimism was not in line with RBI’s projections about inflation. The central bank in its annual credit policy said the level of price rise would remain “elevated" till September.

An inter-ministerial group set up at the behest of Prime Minister Manmohan Singh in February will be meeting Friday to take stock of the price situation, especially of the essential commodities. Basu heads the panel and Friday’s meeting may be attended by RBI governor D Subbarao.

Basu said the inflation has become a global phenomenon, more so in Asia with money flowing in from the developed countries.

Calling for a global coordination to mitigate the problem of rising prices, he said each country is following policies suited to itself rather than finding common solutions.

To rein in the inflation, the Reserve Bank has hiked policy rates nine times since March 2010. More so the inflation in food items is spilling over to the manufactured items category.

On the issue of growth-inflation trade-off, RBI had said “high and persistent inflation undermines growth by creating uncertainty for investors and driving up inflation expectations".