Thursday, May 5, 2011

GDP will come down if oil prices increases: Pranab

Finance Minister Pranab Mukherjee on Thursday projected India’s economic growth at 8 per cent for the current fiscal, lower than the budgetary estimate of 9 per cent, due to measures taken to rein in high inflation.
“If oil prices continue to rise, it would be difficult to achieve higher GDP. GDP may come down to 8 per cent from [the projected] 9 per cent,” Mr. Mukherjee told reporters on the sidelines of Asian Development Bank annual meeting here.
The government’s primary concern now is to manage inflation while sustaining high growth rate. Hardening of global commodity prices, particularly oil prices has accelerated inflation, he said adding “our projection is 7.5-8 per cent inflation during the year.”
Earlier this week, Reserve Bank of India too had lowered economic growth projection to 8 per cent due to measures taken to tackle high inflation especially food prices.
India’s economy is estimated to have clocked 8.6 per cent growth in 2010-11.
Mr. Mukherjee said inflation, particularly the increase in food prices, is a major concern for India as well as other developing countries. “We are trying to reduce it through supply and demand side management.

“On supply side we are trying to remove bottlenecks and on demand side RBI has adjusted interest rates to mop up excess liquidity in a manner so that it may not affect the economic activity,” he said.
With adequate buffer stock and hopefully a good monsoon, “we are looking at easing of the price situation in India”, he said.
Overall inflation was 8.98 per cent in March and has been above the 8 per cent mark since January, 2010.
Asked whether the government is planning to increase diesel prices in the near future, Mr. Mukherjee said “We will announce it as and when the decision is taken.”
In its annual monetary policy, the RBI had advocated hike in prices of petroleum products.
The government has not allowed state oil firms to revise diesel prices since June last year when crude oil was ruling at USD 72-73 per barrel. Crude oil is today trading at around USD 110 a barrel in international markets.
Referring to speculations in global commodity market, Mr. Mukherjee said increase in prices is not merely a function of demand and supply, but also driven by huge financial flows into commodity market in search of higher return.
Mr. Mukherjee said managing capital flows so as to dampen potential threats to macro economic and financial stability remains a continuous challenge.
“Not withstanding these risks, the Indian economy is poised to sustain the growth momentum,” he said.
On volatility in capital flows, he said “International Monetary Fund (IMF) is working out a framework to deal with excess capital flow.”
Excess liquidity is having a spillover effect and collective action is needed to deal with it, he said.
On possibility of an alternative to US dollar as a global currency, he said “we have to adopt a calibrated approach.”
He said all the alternative currencies must have adequate liquidity, should inspire confidence and be fully convertible on current and capital account.
source-The Hindu

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