Indian economy may grow at 8 percent in 2012-13: Rangarajan

India’s economy may grow at 7.1 percent this financial year and inch up to 8 percent next fiscal if the global environment turns favourable, chairman of the Prime Minister’s Economic Advisory Council C. Rangarajan said Wednesday.

“We might be able to achieve 8 percent growth on our esteem, if the world environment is favourable,” Rangarajan told reporters here after releasing the Review of the Economy 2011-12.

The council has pegged gross domestic product growth at 7.1 percent for 2011-12, marginally higher than the 6.9 percent growth projected in the advance estimate early this month by the Central Statistical Organisation (CSO).

Inflation is estimated to come down to 6.5 percent by the end of the current financial year and ease further in the range of 5-6 percent in 2012-13.

“Headline inflation has shown a decline since November 2011 and more strongly in January 2012. It is projected to be around 6.5 percent at the end of March 2012. Both monetary and other public policies seem to have had the desired effect,” Rangarajan said.

This year’s projected GDP growth is substantially down from the budgetary target of around nine percent, and 8.4 percent expansion registered in the previous year.

High interest rates, fragile global economic conditions and the government’s inability to push through key reforms have stunted growth.

The growth in the agriculture and construction sectors is projected to remain higher than the advance estimates released early this month by the CSO, Rangarajan said.

The council has pegged farm sector growth at three percent, compared to 2.5 percent growth projected in the advance estimate.

A record output of rice and wheat on the back of good monsoon and strong growth in horticulture and animal husbandry segments are likely to push upward the agricultural sector growth.

The farm sector has grown by seven percent in 2010-11.

The manufacturing sector is expected to grow by 3.9 percent while construction segment is expected to expand by 6.2 percent.

“Manufacturing and construction have been sluggish during the first three quarters of 2011-12. This may show improvement in the fourth quarter,” Rangarajan said.

Strong growth in the services sector will continue with overall growth estimated at 9.4 percent for the fiscal ending March 31, 2012.

Investment activity has slowed down and as a result the gross fixed capital formation for 2011-12 has slipped to 29.3 percent, a decline of almost four percentage points over the last four years, said Rangarajan, a former governor of the Reserve Bank of India (RBI).

Rangarajan said the fiscal deficit was likely to expand beyond the budgeted estimate of 4.6 percent of GDP, mainly because of increased spending on subsidies, especially on refined petroleum products.

“The government must strive to contain and improve the efficacy of subsidies vis-à-vis the development needs that need to be carved out of the union budget,” the PM advisory council said in the review, emphasising on the need for fiscal consolidation.