Combating growth slowdown and stubborn inflation, India has not been able to lower fiscal deficit. However, RBI governor D Subbarao and C Rangarajan, chairman of the Prime Minister's Economic Advisory Council ( PMEAC) is optimistic that the country's economy will be back on track soon.
Speaking at the Indira Gandhi Institute of Development Research (IGIDR) annual conference, Subbarao said that RBI is trying to identify potential economic growth rate and will revisit strategy on inflation targeting.
Rangarajan too is confident that it won’t be difficult to get back to a higher growth rate, even though gross domestic product (GDP) in the July-September quarter slowed down to 5.3% from a year earlier. Admitting that India is going through a phase of decline in growth rate, Rangarajan stresses that FY13 growth is likely to be around 5.5-6%.
"The government savings rate has come down because of the rise in the fiscal deficit and because of inflation. Therefore we need to reverse both this decline in trend in the savings rate and the investment rate," he elaborated.
Agrees former RBI chief YV Reddy that public policy needs to focus on revival of savings and investments. "First I would agree about savings and investment being the most significant achievement. But on the same logic that there is a dip in both in the recent year, I think that should be the worrying part because it was growing over a period and then last to 2-3 years, the household savings are down. The economy is being driven by consumption demand thereby investment demand," he warns.