Economy to grow by 8% in current fiscal: PMEAC

With persistently high inflation,slowing industrial expansion and global uncertainties posing a challenge to economic growth,the Prime Minister’s Economic Advisory Council (PMEAC) today lowered its forecast for GDP growth to around 8 per cent in 2011-12,from its earlier estimate of 8.2 per cent.

“Growth rate of the economy can be close to 8 per cent,” C Rangarajan,chairman,PMEAC said while speaking at a golden jubilee function of the Indian Economic Service officers. He also pitched for reducing the country’s reliance on capital flows as a means to bridge the current account deficit (CAD),besides ensuring that the CAD does not exceed 2.5 per cent of GDP. He also cautioned on the perils of growing beyond 9 per cent as it would trigger inflationary pressures. “If we continue to grow in the range of 8-9 per cent,as projected in the 12 th Five Year Plan,then we will have a current account of deficit of 2.5per cent of the GDP. I see,at this moment,a problem in financing the current account deficit of that order,” he said. The CAD is expected to exceed 2.5 per cent by the end of this fiscal,he said.

Highlighting the footloose nature of global capital,Rangarajan stressed the need to contain CAD while lowering its dependence upon capital flows as a means of finance. India received dismally low capital inflows of about half-a-billion ($0.488 billion) till August-end this fiscal,SEBI data shows.

Foreign investors have been reluctant to risk money in equities in the backdrop of the sovereign debt crises in Europe,and expectations of global double-dip recession.