Economy to grow in sustained manner; fiscal stimulus here to stay

Stating that his growth estimates are conservative, Finance Minister Pranab Mukherjee today projected a seven per cent growth next fiscal and eight per cent the year after, and felt there was a need to provide incentives for savings and disincentives for negative savings.

The Finance Minister also gave a clarion call to the world community to desist from adopting protectionist measures as these would be counter productive and act collectively to move swiftly towards higher growth globally and in international trade.

Addressing a session at the India Economic Summit here, the Minister said collective wisdom and action, by forums such as G-20 have ensured a recovery in the global economy earlier than expected.

It was, thus, necessary to maintain such an approach to ensure that recovery stands on a more solid base.

The Minister said the economy after the end of the Eleventh Plan (2007-2012) will move back to the high growth trajectory of 8-9 per cent. The vehicle for achieving this growth will be greater investment in agriculture, infrastructure and supportive monetary and fiscal policies.

Delving at length on Prime Minister Manmohan Singh's remarks that India will move out of stimulus packages early next year, Mr Mukherjee said this was necessitated by the need to return to the path of fiscal consolidation as the fiscal deficit is expected to reach 6.8 per cent in the current fiscal and there was a need to return to path of fiscal prudence as early as possible.

Nevertheless, it would be necessary to continue the fiscal stimulus to prop demand as India's growth rate is largely domestically driven. He said that prime driver of the country's growth is the high savings and investment rates and it was imperative to give incentives to propel the savings rate further.

The Minister, however, did not elaborate as to what he had in mind while suggesting incentives for savings and disincentives for negative savings.

It is common knowledge that loss-making public sector enterprises are a major source of dis-savings. The Minister said his conservativeness regarding growth rates emanate from the severe drought earlier and the floods later in many parts of the country.

Besides, exports continue to show a negative growth rate despite nascent recovery of the global economy. As much as 60 per cent of the exports were directed at the United States, the European Union and Japan, and the recovery in these countries has so far not been very encouraging.

The Minister assured that the government's huge borrowing programme will not crowd private borrowings as the government has already borrowed 75 per cent of its requirements till now when demand for money was lower for the private sector.

The meeting was chaired by ICICI Chief Chanda Kochhar and presided over by World Economic Forum Managing Director and Chief Business Officer Robert Greenhill.

-- (UNI) -- 10DI10.xml

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