See FY14 GDP growth 5.3%; high inflation a worry: PMEAC

The economy should grow 5.3 percent this fiscal and as of now there is no reason to lower that estimate, says C Rangarajan, Chairman of Prime Minister’s Economic Advisory Council (PMEAC).

In an interview with CNBC-TV18, he said current account deficit (CAD) for this fiscal is likely to be USD 55 billion. Last week, RBI governor Raghuram Rajan had estimated the figure at USD 56 billion. Rangarajan said the quantum of capital flows should be sufficient to finance this year’s current account deficit. At the beginning of this fiscal, CAD was estimated at USD 70 billion. But a steep fall in gold imports because of policy curbs and an uptick in exports because of the weak rupee has given the government much room for optimism. Rangarajan conceded that high inflation was a cause for concern. He sees food inflation moderating because of the higher-than-normal monsoon this year. He is looking at a 3 percent increase in manufacturing growth this fiscal. In response to a question by CNBC-TV18 guest editor Jyotivardhan Jaipuria, Rangarajan said the impact of the fast track project clearances by the Cabinet Committee on Infrastructure will be felt in the coming fiscal (FY15). Also read: India safer than other EMs; earnings close to bottom: BoAML Below is the verbatim transcript of his interview on CNBC-TV18 Q: Do you think the rupee is clearly out of the woods, current account deficit (CAD) has genuinely been controlled and it won't rise as a problem perhaps for the next year or so? A: I think the current account will continue to improve. According to the latest trade data available. for the period April-October, the trade deficit was clearly USD 20 billion lower than the trade deficit in the corresponding period of last year. Therefore, one shouldn’t be surprised that the overall CAD touches around USD 55 billion this year, which will be 3 percent of the GDP as compared to 4.8 percent of the GDP last year. I would also think that the quantum of capital flows necessary to cover this CAD should also be forthcoming. All indications are that tapering will not occur till April of next year. Therefore the capital flows should be coming in. Taking all these factors into account I would say that the rupee would remain stable and if anything it might strengthen a little bit from the current level. As far as the year is concerned, I think we should be able to sail through very comfortably. Q: Inflation already at double digits as far as the consumer price index (CPI) is concerned and the Wholesale Price Index (WPI) with the revisions for the last three months has been at 7 percent plus. Do you think that like 2010 we can see an ugly spurt with food inflation becoming a generalised inflation? A: Food inflation has already made its appearance. If you will recall in 2010-2011, the vegetable price had started rising sometime in January or February but this time it has happened in October itself. I would think that with good monsoon food inflation should moderate but nevertheless vegetable inflation has been very high. In fact if you look at food inflation it has taken different forms over the different years. In 2009-10 food inflation was triggered by rise in the food grain prices but in 2010-11 as well as in the current year the food inflation is being triggered by increases in vegetable prices and vegetable prices rise not by a small amount but by a huge amount. However, I would think that the spurt in vegetable prices has already happened. You should see in the subsequent month’s moderation rather than a further rise. I would say that wholesale price inflation of 7 percent is still very high and at the retail level it is even higher. We need to tackle this problem. I think inflation may not rise any further to any significant extent but an inflation rate of 7 percent persisting and coming after two years of very high inflation is something that we need to worry about. Q: The other thing to worry about is the way growth is panning out. PMEAC had scaled down their FY14 growth estimates to about 5.3 percent but given that we have seen no concrete recovery in the past many months is there a fear that you may have to scale it down further your growth estimates for the year? A: I don't see at this particular point any need to scale it down because agricultural growth may even be better than what we had originally estimated. As far as manufacturing growth is concerned we were very modest, we had projected a growth rate of about 1.5 percent for the year as a whole. The manufacturing growth in the first half of the year has been flat therefore if we grow at about 3 percent in the second half of the year we can still get about 1.5 percent. I don't see why we cannot grow at 3 percent in the second half of the year. There will be a pickup in rural demand, agro-products should help the agro-based industries and the exports are showing signs of pickup. All of this taken together we are again looking for a modest rate of growth of 3 percent in the second half of the year in manufacturing which should come in which case the overall growth rate of between 5 and 5.3 percent will still be possible.