Growth beyond 7-7.5% likely to stoke inflation: YV Reddy
In an interview with FE editor MK Venu for Rajya Sabha TV, Reddy – who has recently been designated chairman of the 14th Finance Commission – added that the new normal for global growth may be less than the pre-crisis period’s 3.5%, which was found unsustainable.
Reddy\'s remarks are a sign of the growing realisation among India\'s policymakers that the economy\'s productive capacity at this stage is somewhat strained, an opinion some independent economists had expressed earlier. In July last year, Subbarao has said that India\'s post-crisis potential growth rate might have fallen to around 7.5%, down from the 8% estimated previously. The GDP growth rate had fallen to 6.5% last fiscal from 8.4% in the year before. The growth was a lower-than-expected 5.3% in the September quarter of this fiscal, which saw a 10-year-low growth in public consumption, and a dismal 5.5% in the previous quarter. The combined efforts of the government and the RBI to spur investment and consumption demand would hopefully bear fruit and the economy may be bottoming out.
India\'s potential growth rate increased from 6% in late 1990s to above 8.5% in mid-2000s, thanks to gradual but consistent reforms.
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