New Delhi: Finance Minister Pranab Mukherjee has issued grim warning saying that the economy could grow at less than seven per cent in 2011-2012. Mukherjee said that the months ahead could be very difficult for the economy.
He said that the growth rate could fall below seven per cent in the current financial year from 8.5 per cent a year ago.
Speaking at the CNBC-TV18 Business Leadership award function he also said that the Indian economy cannot be fully insulated from global threats as the world economy particularly Eurozone remains fragile.
"We have difficult two-three months in the current fiscal. Our growth for 2011-12 may be around seven per cent. Despite the challenges before us, I am confident that we will improve our short term growth prospects in the coming months," said Mukherjee.
He, however, expressed hope that the Reserve Bank would take appropriate steps in its forthcoming monetary policy review on January 24 to keep the growth momentum.
Addressing India Inc in CNBC-TV18's India Business Leader Awards, Mukherjee assured that the government is making best efforts for medium to long term fiscal consolidation. Though impacted by the global developments, India's growth fundamentals are strong and is a frontrunner compared to other economies, he added.
However, adhering to the fiscal deficit target of 4.6 per cent still remains to be a big challenge and the FM thinks that moderating inflation may be soothing balm to the sore thumb. He is expecting inflation to be around 6-7 per cent by March-end.
The government last month revised the growth forecast for the current fiscal downward to 7.5 per cent. The Indian economy had expanded by 8.5 per cent in FY11.
During the first half this fiscal, economic growth stood at 7.3 per cent. In the second quarter (July-September) of FY12, growth slipped to a two-year low of 6.9 per cent.
Meanwhile on other issues, Mukherjee stressed that India needs to delink business sentiment from global cues. He also added that all efforts will be made to remove infrastructure bottleneck and to increase job creation in manufacturing sector.
He also said that rupee depreciation may remain till the euro-zone crisis is settled.
Referring to the price situation, Mukherjee said inflation, which has come down to 7.47 per cent in December from 9.11 per cent a month ago, would further moderate in the coming months.
"There are some clear signals of inflation moderating in the coming months. I am expecting it (inflation) to be in the range of 6-7 per cent by end March," he said.
The improvement in index of industrial production (IIP) numbers and inflation situation, he added, "indicates some improvement in the overall economic parameters in second half for 2011-12.
"I hope to see this trend get consolidated in the coming months with some policy correction. India's growth fundamentals are strong and they look more attractive in a world challenged by problems of confidence and lack of growth," he added.
Attributing the rupee depreciation to global factors, he said, the pressure on the domestic currency was likely to continue until some solution is found to the sovereign debt problem of the eurozone countries.
"There has been a moderation in the level of foreign institutional flow and this has resulted in declining equity indices and a sharper depreciation of rupee in forex market", the Minister said.
Rupee depreciation, he added, was also being driven by global factors and "the pressure would continue until there is a solution to sovereign debt problem in eurozone."
The Indian currency has depreciated by over 16 per cent against US dollar in the current financial year.
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