Indian economy expected to grow at 7 pc

MUMBAI, Feb 21 (PTI): The Indian economy is expected to grow at least 7 per cent in the next financial year on the back of the two stimulus packages given by the Government, but in the immediate-term there would be some pain and a rise in unemployment levels, a top Government official said.

“The world economy expects a recovery in the second- half of the next fiscal...in the coming year, India’s growth will be at least seven per cent,” Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, told reporters on the sidelines of a seminar here today.

However, in the immediate-term, the manufacturing, gems and jewellery and other export-oriented sectors would suffer some pain coupled with a rise in unemployment levels, he said.

“The pace of economic growth will be slower in the first-half but there will be a pick-up in the second-half. Post-September 2009, there will be a revival in the economy,” Ahluwalia said.

With inflation not a problem, the focus would now be on stimulating growth, he said.

Both fiscal and monetary policies would now be aimed at supporting growth. “Growth is a problem, inflation is not a problem,” he said. “Compared to other countries, we are doing reasonably well...(though) we are growing below our potential … many sectors are feeling the pain. Right now, the foremost challenge is to restore the growth momentum of the economy,” Ahluwalia said.

The fiscal and monetary measures have enough flexibility to respond to the prevailing economic situation, he said.

On Reserve Bank Governor D Subbarao’s observation that there is a room for policy rate cuts, Ahluwalia said that there is enough flexibility on the monetary side (to reduce policy rates).

The Deputy Chairman of the Planning Commission said that with some sectors affected by the economic slowdown, NPA levels of banks may witness a rise, though these would not be significant.

Banks have been unusually slow to respond to various signals from the Government and RBI to extend credit to needy segments, he said. “Banks are sufficiently liquid … banks should extend credit to needy segments like SME,” Ahluwalia said.

On credit off-take, he said that banks’ credit growth has been improving since January and is further expected to improve in the next one-two months. Globally, central banks have been infusing liquidity into the system to face the challenge of the economic slowdown, Ahluwalia said.

On another stimulus package to industry, Ahluwalia said this package, to be announced with the full budget, should be around 1 per cent of GDP or Rs 60,000 crore.