Concentrate on Inflation woes: Rangarajan

Shreenesh Raman


Rights methods need to be adopted to control inflation, Rangarajan
The post liberalisation period of Indian economy has seen a robust growth prospects in selective sectors. Later the adrenaline of high growth rate has pushed the inflation beyond its threshold, said C Rangarajan, Economic advisor to the PM, during a memorial lecture in a private university near here on Monday. 

Following the soviet model of economics, our country was facing a serious balance of payments. The 1991 liberalisation policy of the central government has thrown open many opportunities in various sector for both government and private sector industries.  

GDP Growth Rate 

The GDP growth rate grew at an average of 6.8 percent between 1992-93 and 2010-11 when compared to the pre-reformed value of 5.6 percent during 1981-82 and 1990-91. The  Economic advisory council projected a forecast of 8.2 percent for the year 2011-12. However, the Industrial production witnessed a slump in 2010-11 with a negative growth of -5.5 percent.  Due to the decreased industrial output, the economy lost a chunk of its mileage to achieve the 8.2 percent target. Further projections were altered to 7-7.25 percent, said Rangarajan. 

Answer the hypothetical question on the 9 percent growth rate, the senior economist said, it is possible to reach the target once we recover from the current output loss. The savings and investment rate to the GDP has crossed the 35 percentage mark, he said. Growth path would become conducive for the economy to regains its investment credentials. 

Current Account Deficit in India 

The CAD percentage to GDP determines the balance of payments by the government. Keeping the CAD rate under 2.5 percent will ensure the much required long term economic stability and further insulating the domestic market from global financial turmoil, said Rangarajan.  

The artificial demand stimulation in the wake of financial crisis impacted the fiscal deficit of the exchequer. As a spiralling effect, Deficit jumped from 6 percent in 2008-09 to 6.4 percent in 2009-10, leaving the domestic market and government in deep peril. Process are undertaken to cool-down the crisis laden fiscal deficit, and it is expected to reach 4.6 percent this year, projected Rangarajan. 

Sectoral Constraints


When the issue of Farming and Power is taken in to the growth index of India, it poses a major challenge for economist and the government, said the PM advisor. Majority of power projects were commissioned by the government from late 60s till early 90s. The liberalisation has brought private players into the power sector. However, the government still has a major inventory when it comes to Generation, Transmission, and Distribution. Though the electricity production deficit doesn't affect the economy directly, there is greater indirect impact on other sectors ranging from farming to industrial output. 
In order to achieve the 9 percent growth rate, constraints in fuel allocation, land acquisition and environmental clearance need to be tackled. Though we set a decent capacity addition target of 78577 MW in the 11th five year plan, we were able to reach only 39000 MW. 


On the other hand, agriculture is facing severe crisis from rapid industrialisation, cost overruns and unfavourable investment climate. The high inflation rate has created a cascading prise rise factor in the market, says Rangarajan. We witnessed a worst agriculture production decline with a sharp fall of 16.59 million tonnes in 2009-10. 

In February 2010, the country saw a 21 percent food inflation rate, while the WPI inflation rates peaked to 10.9 percent in April 2010. The aftermath of the strong rise in inflation figures were not able to cool down even after November 2010. As a result other commodities started to rise, adding fuel to the rising prices, fossil fuel prices were also escalating in the market. The era of Onion politics was hitting the day light when the vegetable prices touched 67 percent in January 2011. The second quarter of the 2010-11 fiscal years saw inflation in manufacturing sector reacing 7.4 percent March 2011. 

The economy is set to stabilise by the end of 2012 and the economy would revert back to normalcy assured C Rangarajan addressing the gathering in SASTRA University delivering the 7th Narayanan memorial lecture on Monday. 

Source: Express Thanjavur


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