PMEAC lowered GDP Growth to 8 per cent in 2011-12 from earlier estimate of 8.2 per cent

The Prime Minister’s Economic Advisory Council (PMEAC) on 29 September 2011 lowered its forecast for GDP growth to around 8 per cent in 2011-12, from its earlier estimate of 8.2 per cent. The eastimate was lowered on account of persistently high inflation, slowing industrial expansion and global uncertainties posing a challenge to economic growth.

C Rangarajan, chairman of PMEAC mentioned while speaking at a golden jubilee function of the Indian Economic Service the need for for reducing the country’s reliance on capital flows as a means to bridge the current account deficit (CAD), as well as the need to ensure that the CAD does not exceed 2.5 per cent of GDP.

PMEAC cautioned on the perils of growing beyond 9 per cent as it would trigger inflationary pressures. It pointed out that if the country continues to grow in the range of 8-9 per cent, as projected in the 12 th Five Year Plan, then a current account of deficit of 2.5per cent of the GDP will be created. The CAD is expected to exceed 2.5 per cent by the end of the 2011-12 fiscal.

Highlighting the footloose nature of global capital, Rangarajan stressed on 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 in 2011-12 fiscal.

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.

Rangaranjan pointed out that there existed short-term concerns and medium-term constraints which would come in the way of achieving 9 per cent growth. There are three short-term constraints- one is inflation, the second is balance of payment and the third area is fiscal consolidation.