India growth may surpass 8% this year

08:58, February 26, 2010      

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India's economic growth may surpass 8 percent in the coming financial year, Finance Ministry projections showed, allowing scope for a reduction in stimulus measures that would help the nation restrain its debt burden.

"The economy has posted a remarkable recovery from the global recession," according to the annual Economic Survey prepared by officials advising Finance Minister Pranab Mukherjee, released in New Delhi yesterday.

"The recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15 to 18 months."

The challenge for Mukherjee is to unwind 7.5 trillion rupees ($162 billion) of fiscal stimulus and curb consumer-price inflation that's the highest in the Asia-Pacific region, according to data compiled by Bloomberg. "Mukherjee has a tough balancing act, to support growth and cut the budget deficit to control inflation," said Shashanka Bhide, chief economist at the National Council, a corporate-funded analysis group.

Prime Minister Manmohan Singh's administration, which won reelection last year, will also aim to avoid hampering an economic rebound that's yet to produce earnings gains for DLF Ltd, India's largest real-estate developer, and has left out an agriculture industry hammered by a poor monsoon.

Mukherjee may raise the excise tax by 2 percentage points and the service tax to 12 percent from 10 percent, Goldman Sachs Group Inc said last week. He also may accelerate sales of state-run companies including Coal India Ltd, India's monopoly coal producer, and Steel Authority of India Ltd, the nation's second-largest steelmaker, to boost revenue.

"You can't maintain your policy settings at crisis levels" when growth rebounds, Stephen Roach, chairman of Morgan Stanley Asia Ltd, said in an interview in Mumbai this month.

"If monetary and fiscal accommodation persists for an indefinite period, you run the risk" of consumer and asset-price inflation, he said.

Since December, there have been signs of food-price inflation spreading to manufactured goods and services, the Finance Ministry said. India's benchmark wholesale-price inflation accelerated to 8.6 percent in January, the fastest pace since October 2008. Sixty percent of India's inflation reading is contributed by food items after monsoon rains were deficient last year, the ministry said.

"Inflation management therefore should involve controlling the demand situation as well as reining in inflationary expectations through various monetary measures," the Indian finance ministry said.

Mukherjee is scheduled to unveil the budget for the fiscal year starting April 1 in parliament in New Delhi today.

He had cut excise tax by 4 percentage points and stepped up government spending on roads and power since December 2008 to support the economy amid a global recession.

The budget deficit may widen to 6.5 percent of GDP in the year ending March 31, a 16-year high, the ministry estimated yesterday.

Source: China Daily
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