FM sees economy improving further

Union finance minister Pranab Mukherjee said on Wednesday that the economy would continue to improve over rest of the fiscal as the stimulus boosters provided by the government keep working latently. The minister, however, added that a full recovery would take more time and would be linked to global recovery.

Mukherjee said that the level of aggregate demand in the economy had improved considerably on account of the stimulus efforts of the government adding that the growth for the current fiscal would be 6% plus, despite a poor monsoon. The FM said that there was strong recovery going on in both, industry and services sector, and if the present trend continues, growth in next quarter would be much higher than witnessed in the June quarter.

India’s southwest monsoon has been nearly 20% below average till mid-September and poses a strong downside risk to growth. But the minister said that late rains had eased the drought situation and would also help the winter crops. Since monsoon withdrawal has been slow this season, late rains have also helped improve water level in reservoirs which would minimize impact on power generation and irrigation for the winter crops.

The government cut excise duty across the board by 4% and further 2% for selected industries in response to severe slowdown in manufacturing sector following the global economic downturn. It also took some other measures including greater expenditure in social schemes to boost domestic demand and some sector specific sops to auto and textile sectors among others in order to help the manufacturing industry. RBI, too, cut its repo rate and reserve ratio by 425 basis points and 400 basis points respectively to bring the interest rate down in a move aimed at boosting credit demand and consumption.

As a result of fiscal and monetary efforts, the growth in India’s manufacturing surged to more than 7% in June from negative growth in early months of the year. Gross domestic product (GDP), too, has shown sequential improvement in growth in last three quarters from 5.3% to 5.8% and then to 6.1%, although the figures are seasonally unadjusted. In wake of visible improvements in the economy, a number of multilateral agencies including the World Bank, the IMF and the Asian Development Bank have raised the growth forecast for Indian economy by up to one percentage point.