Tough times ahead, growth could fall below 7.5%: FM

Jan 08 2012, 00:17 IST
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Pranab Mukherjee. Reuters Photo Pranab Mukherjee. Reuters Photo
SummaryHeadwinds: Rupee depreciation, high fiscal deficit a challenge

Finance Minister Pranab Mukherjees prognosis on the economy showed that difficult months lay ahead. He warned that pressure on the rupee will continue and that growth in the current fiscal is likely to be less than the earlier estimate of 7.5 per cent.

Rupee depreciation is largely driven by global factors and the pressure would continue until there is a durable solution to the sovereign debt problem in Europe, he said while speaking at the NDTV Business Leadership Awards here.

The fourth quarter of the current fiscal is likely to be difficult and growth could fall below 7.5 per cent, he said, adding that maintaining the fiscal deficit at 4.6 per cent of the GDP during 2011-12 would be a major challenge.

We have a difficult three months ahead of us in this fiscal year. Our growth for 2011-12 may be around 7.5 per cent or less, he said.

The government, he added, will have to be alert to shape real-time policy responses, reform systems, improve the regulatory framework of our institutions to make the most of the opportunities coming our way.

The RBI, he said, would take into account the important concern of balancing the targets of controlling inflation and keeping up growth and employment generation.

The central bank is slated to come out with its monetary policy review on January 24.

With respect to the fiscal deficit, Mukherjee said, Performance during the first half on the fiscal front poses some risks in both receipts as well as expenditure estimates. Adhering to the fiscal deficit target of 4.6 per cent of the GDP in 2011-12 is a major challenge.

The Centre had proposed to bring the fiscal deficit down to 4.6 per cent in 2011-12 from 4.7 per cent a year ago.

The economy had recorded a growth of 8.5 per cent during 2010-11. The growth during the first half of the current fiscal slipped to 7.3 per cent.

The rupee has depreciated by over 16 per cent against the dollar since April, 2011, mainly on account of the withdrawal of funds by FIIs due to global factors.

Expressing satisfaction on the moderation in inflation, the Finance Minister said, I expect it to be in the range of 6-7 per cent (by March). At the same time, I would like to emphasise that this is not an acceptable level.

He further said the current state of heightened global uncertainty had an impact on the financial, equity and foreign exchange markets of

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