Finance minister Pranab Mukherjee said on Tuesday that the Indian economy will soon revert to the higher growth trajectory and the present downturn is only temporary.
The Indian economy has been hit hard by the slowdown in Europe and the United States, stubborn inflation and high interest rates. Industrial growth has slowed, while overall GDP growth in the current fiscal year is expected to be around 7.5%, lower than the previous estimate of 9% and above.
Addressing the fourth meeting of the consultative committee attached to his ministry, Mukherjee also said instructions have been issued to all ministries and departments to adhere to their expenditure ceilings. The finance ministry is keeping a close watch on spending by ministries and departments as it battles to curb wasteful expenditure. The government has said it would be difficult to meet the fiscal deficit target of 4.6% of gross domestic product in the current fiscal year due to the slowdown and fresh spending commitments and subsidies.
Members of the panel said there must be a credible and strong path of fiscal consolidation. They said that some key sectors like power, civil aviation, health, infrastructure and telecom need priority and higher investment but cautioned that necessary checks should be in place to ensure that funds are not mis-utilized. FM said the world economy is going through turbulent times. He said that due to the euro-zone crisis, downturn in external demand had hurt exports. The finance minister said the currency volatility and current account deficit among others have also impacted the economy.
“It was, however, reassuring to note that the pause in the Indian growth story was brief,” Mukherjee told the panel. He said food inflation has eased to 1.8% and there is moderation in inflation in general. He said the savings rate had also gone up which augurs well for the economy.
Some members suggested that there was a need to bring FDI to give justice to farmers and said the union government should arrive at a proper mechanism in close coordination with state governments. The government had allowed 51% foreign direct investment in the multi-brand retail sector and had paved the way for entry of global retailers such as Wal-Mart and Carrefour into the sector but had to put on hold its decision in the face of stiff opposition from opposition parties and some of its allies.
Some members said efforts should be made to stop the migration of agricultural labourers from villages to cities. In order to achieve this, setting-up of agrarian industries in rural areas should be encouraged. Some members stated that efforts should be made to reduce agriculture’s dependence on rain and enough incentives should be given to produce oil seeds and pulses indigenously. They also said that credit to the agriculture sector should also be increased and cash subsidy should be given directly to the beneficiaries.