Agriculture, infrastructure need special attention
India will emerge as a strong middle-income country if its economy grows at 8-9 per cent per annum in the coming decade fuelling the per capita GDP from the current $1,600 to $8,000-$10,000 by 2025, says C Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council in an interview with Sunitha Natti of The New Sunday Express.
Do we have to draw from the country’s forex reserves to finance the widening CAD?
No need to draw from forex reserves as indicated earlier, as CAD is improving now. Earlier, it was projected that we may have to draw about $9 billion from our forex reserves. But that’s not necessary now. In 2010-11, CAD was at 2.7 per cent or $46 billion but it almost doubled the following year to 4.2 per cent at $78 billion. This was because of substantial increase in imports of gold and of course oil. In 2012-13, it touched 4.8 per cent of the GDP at $88 billion. In the previous years, it (widening CAD) was no serious concern as capital flows were adequate and added to the reserves. But in the current year, CAD is high and with capital flows slackening, rupee came under pressure. Capital flows were affected as FIIs pulled out following the US Fed Reserves measures. But now that the situation has subsided, capital flows have started coming and exports too have picked up. Trade deficit during the April-September period was $10 billion lower than last year. We expect CAD will come down from $88 billion to $70 billion i.e. to 3.8 per cent of the GDP or perhaps even go down substantially to 3 per cent in the current year. If capital flows continue, it could even touch 2.5 per cent in immediate future.
What about economic growth?
In 2008-09, growth was 6.7 per cent and recovery was smooth. In 2009-10, it was 8.6 per cent, 9.3 per cent in 2010-11, 6.2 per cent in 2011-12 and in 2o12-13 it stood at 5 per cent. For the current fiscal, we expect growth will be between 5 per cent and 5.5 per cent. And this year, the monsoon has been better and will have a direct impact on agro industry. The IIP for the past six months was low but is expected to pick up in the second half of the current fiscal because of four reasons. One, steps to encourage production will start yielding results. There’s a special emphasis on achieving production capacities in infrastructure that’s under government control such as power, coal and roads. Conscious efforts are being made for speedy implementation of projects and a Cabinet committee has been set up. Lastly, exports are picking up. Except for China, none of the other Asian economies are growing at even 5 per cent. So we are good.
Do you expect inflation to subside?
In April 2010, the Wholesale Price Inflation (WPI) was 10 per cent. A year later, it was 9.7 per cent, in 2012 it stood at 7.5 per cent and in April, 2013 it was at 4.9 per cent. But subsequently in September, 2013 it went up to 6.5 per cent. This was triggered by rise in food inflation and to contain this, we need to maintain price stability and if a rising minimum support price gets built into food inflation, the overall rate will be high.
What are the major sectoral concerns?
Agriculture and infrastructure require special attention. Agricultural growth at 4 per cent per annum is essential to ensure food security and also to contain poverty. Likewise, infrastructure is fundamental for the economic growth. As per the 11th Five-Year Plan, the capacity creation was 50 per cent higher than the previous Plan. The 12th Five-Year Plan’s target of generation is 75,000 mw.