See inflation at 7% by March 2011: Shankar Acharya

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Is the new GDP data reliable? Govt revises demand data June quarter GDP Q1 GDP at market price revised to 10.02% from 3.7% Real GDP data on firm footing: Kaushik Basu Anomaly in Q1 GDP: What led to the confusion?

The government on Wednesday restated the first quarter gross domestic product (GDP) at market price to 10.02% from 3.7% earlier. The Ministry of Statistics said the revision was on account of wrong calculation of GDP deflators. Expressing shock over the matter, Shankar Acharya, Honorary Professor at ICRIER said the error exposes inefficiency in the system. He believes there were clear signs of deceleration in the industry and GDP growth may come down between 8.2% and 8.5%.

Shankar Acharya said the the upcoming GDP data should reflect a slow-down in industry expansions. However, by March 2011 the annual rate of inflation is likely to come down to 6.5%-7%. We can expect growth rate in the agriculture sector to see a revival, he said.

Below is a verbatim transcript of his interview with CNBC-TV18's Udayan Mukherjee. Also watch the accompanying video.

Q: Where do you stand in this debate, which sparked off last week, on the demand and supply side data on GDP?

A: I do not know what you mean by stand on the debate. I think it's quite shocking that the Central Statistical Organisation (CSO) for the first time, as far as I can recall, has had to actually issue a press note revising its national income estimates, within a day of putting them out. So, I think that in it to me pretty shocking and perhaps symptomatic of rising inefficiency throughout governmental system. But of course mistakes can happen, so one perhaps shouldn't make too much of it.

On the supply versus demand thing for national income estimates, as you know the supply side, the GDP side estimates have been with us for more than 50 years, whereas demand side estimates are relatively more recent only, perhaps ten years or so and at the quarterly level even more recent. But you expect some differences between them, given our developing country situation. But what bothers people on the demand side estimates is that when you look the contribution to growth, the role of discrepancies is quite significant; I believe its 4-5%, so that's a bit worrying.

Going back to the supply side, we are all happy that the number is 8.8% for the Q1 of this year, but there are couple of things I would like to point out, which suggests that it will moderate. First, the investment rate has come down from 37% in the last quarter of FY09-10 to 33% in the Q1 of FY10-11, so that's quite a sharp drop.

Second, we have seen clear signs in the index of industrial production (IIP) data of deceleration in the industry. So, together I would think that we may have seen a peaking of the quarterly annualised rate of growth of GDP for the time being. I maybe wrong, we should find out in three-four months time.

The other point I would make on the supply side of course is that the quarter-on-quarter growth rate deseasonalised has come down from around 3% in the final quarter of the previous year to around 2% in the Q1 of this year.

Q: When you talk about some kind of peaking out, do you think it's just a slight tempering of the sharp growth that we have witnessed over the last couple of quarters 8.8%, reverting to something like 8.5% and not galloping to 9% plus or are you talking about something more dramatic or drastic about that?

A: No, at this stage, it would be more tempered decline. I would still maintain as have done for the last six months that for the full year FY2010-11, we should expect to see the annual GDP growth above 8%, possibly close to 8.5%. I believe some government spokesman think it will be close to 9%. I am sceptical on that one. But the point is I think what will happen is 8.8% will probably come down in the next two-three quarters to sort of in the 8.2-8.5% category.