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Montek downplays IMF forecast

Planning commission deputy chairman Montek Singh Ahluwalia made light of the International Monetary Fund’s cut in its forecast for India’s economic growth to below 5% for 2012-13 and said that it is a consequence of a peculiar variation between supply-side and demand side calculations of gross domestic product.

Says forecast cut is due to peculiar variation between supply, demand side calculations of GDP

Planning commission deputy chairman Montek Singh Ahluwalia made light of the International Monetary Fund’s cut in its forecast for India’s economic growth to below 5% for 2012-13 and said that it is a consequence of a peculiar variation between supply-side and demand side calculations of gross domestic product.

?A lot of our forecast is measured on GDP at factor cost. But IMF uses market price data and for some reason, in the first quarter this year, there is a variation between the the market price growth and that measured at factor cost,? Ahluwalia said in a speech at a banking conference organised by Financial Times and YES Bank.

Ahluwalia said slowdown is now over. However, he was unwilling to conclude that growth is recovering based on the lates industrial output data. ?It is too early to say that a turnaround has set in,? he said. IIP grew by 2.7% in August, much higher than analysts’ estimates and compared with July’s reading of a contraction of 0.2%. Ahluwalia said the government’s recent measures to boost economic growth by allowing greater foreign direct investment in key sectors such as retail, insurance, broadcasting and aviation will result in the economy turning around over the next six months.

?In the second half of the year, many of the measures taken by the government will revive the economy and lead to a turnaround setting in,? he said. He expects the GDP growth to be around 6% in the October-March period. He added that the economy can be brought back to the growth rate of 9% by 2017 when the 12th five year plan ends.

Ahluwalia warned that the slowdown in global economy will pose a constraint on the 9% growth target. While exports may not perform poorly, the country will have to live with higher oil prices, he said.

?We should learn to live with oil prices at current levels,? he said. Ahluwalia said the current account deficit is likely to remain around 3% of GDP in the medium-term because of higher imports although gold imports may come down further.

To finance the current account deficit, the country will need an inflow of $60 billion, Ahluwalia said.

Inflation uncomfortable

Ahluwalia said that inflation continues to be out of comfort level of policymakers. Inflation based on wholesale price index rose to a 10-month high of 7.81% in September from 7.55% in August. Earlier, consumer price index inflation had fallen to 9.73%, lowest since April. The high inflation reading has dampened expectations of a rate cut by the Reserve Bank of India at its second quarter monetary policy review due on October 30.

Ahluwalia refused to comment on the possible step the RBI may take at its review. The deputy head of planning commission said that inflation of 5-6% is comfortable. The government’s steps will address supply-side issues and help inflation situation, he said. However, an uptick in inflation will be felt in the short-term due to the hike in diesel prices.

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First published on: 16-10-2012 at 02:59 IST
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