In what may be considered a sign that India is not unaffected by the global economic turmoil, the government on Friday lowered the GDP growth forecast for this financial year to 7.5 per cent, citing global and domestic reasons.
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It had earlier pegged gross domestic product (GDP) to grow at 9 per cent.
While exuding confidence of a revival next year, Finance Minister Pranab Mukherjee also sought the Opposition's help in making India more investment friendly and work towards improving its economy.
"The analysis of several data series and simple macro-econometric modeling lead us to forecast GDP growth of 7.5 per cent (plus/minus 0.25 per cent) during 2011-12," the government said in the Mid-Year Analysis 2011-12 tabled in Parliament.
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Compounding with domestic factors like decline in industrial production, the global situation has led to a clear slowdown in the growth rate in the first half of 2011-12 to 7.3 per cent from 8.6 per cent year-on-year, it said.
"We expect some revival next year but the outlook remains mixed. If Europe slides into proper recession, with all the attendant financial contagion that will no doubt affect other nations, the entire world economy will slow down and we could also be impacted," it said.
The analysis, however maintains that with India's strong fundamentals, and if Europe and the US remain stable, it should be possible for the country to achieve 9 per cent growth in the long run.
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On high rate of price rise, the government expects that with demand side pressure moderating following withdrawal of fiscal stimulus and tightening of credit, overall WPI inflation is likely to decline December onwards.
"...the current fiscal may end with headline inflation of around 7 per cent," it said.
It further said "maintaining the growth momentum in the economy with price stability is one of the biggest policy challenges that India is facing in recent times," the analysis tabled by Finance Minister Pranab Mukherjee in Lok Sabha said.
PRANAB SEEKS OPPOSITION'S HELP
Acknowledging that 7 per cent growth was inadequate, Finance Minister Pranab Mukherjee sought Opposition's cooperation to improve investment climate.
The government, he said, was keen to step up growth while tackling inflation which is perilously close to double digit, even though food prices have shown declining trend over the last seven weeks.
Replying to a debate on inflation, Mukherjee said price rise was linked to international situation but made it clear that the government was not in a position to increase subsidy to address the price situation.
Contending that economic growth has been high during UPA rule, he admitted that GDP of 7 per cent was "not adequate" but refused to accept the Opposition contention that it was all-time low.
"There is no link between inflation and growth. We shall have to contain inflation, we shall have to go for higher growth...please don't say that nothing has happened," he said.
Mukherjee said the government would endeavour to bring down inflation to 5-6 per cent from 9.73 per cent in October.
NDA and Left parties were not satisfied with his reply and staged a walkout, with Leader of the Opposition Sushma Swaraj saying that arguments offered by Mukherjee were stale, oft-repeated and did not offer any relief to common man.
The economy registered a growth of 7.3 per cent in the first half of the current fiscal. The annual growth is projected to be 7.5 per cent, down from 8.5 per cent recorded in 2010-11.
- With inputs from PTI