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May 03, 2013, 03.23 PM IST | Source: CNBC-TV18

Montek Singh Ahluwalia: Govt not as pessimistic as RBI; 6.4% GDP growth likely

The Reserve Bank of India’s (RBI) sees Indian economy growing at 5.4 percent in FY14, which according to Montek Singh Ahluwalia, deputy chairman of Planning Commission is a pessimistic projection.

The Reserve Bank of India’s (RBI) sees Indian economy growing at 5.4 percent in FY14, which according to Montek Singh Ahluwalia, deputy chairman of Planning Commission is a pessimistic projection.

With cabinet committee on investment (CCI) planning to take necessary steps to clear large impending projects, he feels the economy has the potential to grow more than 6 percent in FY14.

“Investment is held up and that is constraining the economy. CCI has met and has had some very important decisions. RBI is more pessimistic than the government. The government’s growth forecast is as of now still feasible,” he said in an interview to CNBC-TV18.

RBI on Friday cut the policy or repo rate by 25 basis points to 7.25 percent . However, the cash reserve ratio (CRR) was kept unchanged at 4 percent.

Below is the edited transcript of Montek Singh Ahluwalia’s interview with CNBC-TV18

Q: What did you make of the monetary policy today?

A: Some people might have felt that maybe there could have been more than 25 bps repo rate cut. But what is constraining the economy is not the impact of the repo rate on investment. That transmission mechanism in any case is not all that direct.

What is constraining the economy is that investment is held up because a lot of large projects are held up. The government itself has said, so we have we set up a cabinet committee on investment (CCI), that committee has met and has had some very important decisions.

Q: RBI is pegging FY14 GDP growth at 5.4 percent, which is well below what the Prime Minister’s Economic Advisory Council (PMEAC), what the government has put out, the government’s estimate is between 6.4 and 6.7 percent pretty much mirroring what the PMEAC has also said. So there seems to be a huge disconnect as far as growth goes?

A: The RBI is clearly more pessimistic than the government is. I think that the government forecast is as of now still feasible. Critically, what matters is how effective we are in restoring the momentum of investment in these large projects. I have no idea what the RBI thinks our effectiveness will be, but we are working hard on it.

Over the next few weeks you should see that many impediments have been removed. If those impediments are removed, investment sentiment is improves and I do not think it is impossible that the growth rate of the economy which average 5 percent or so last year goes up well above 6 percent in the current year. We have in the past such increases in growth and growth rates are also get s revised. I want to see what the final growth data from last year end up being.

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