I return to highlight the growth peak of 9.6% the Indian economy touched n 2006-07- this is said to be the highest growth rate in 18 years.
My immediate responses:
- The achievement is all the more remarkable because it comes on top of three years of high growth prior to 2007-08.
- For four years now, the actual growth rate has exceeded most forecasts. For 2007-08, the forecast was in the range of 8.5-9% and the earlier estimate 9.2%. For 2007-08, the RBI forecasts 8.5% and the Economic Advisory Council 9%. These two forecasts rested on the previous estimate for 2006-07. Now that we have a higher base for 2006-07, will the forecast growth for 2007-08 materialise? Going by recent experience, yes it will!
- More interesting is the outlook for 2008-09. The EAC, the RBI, the Deputy Chairman of the Planning Commission and the Finance minister are all sanguine about growth prospects despite the enveloping gloom arising from financial market turbulence. In government, it is fair to say, the consensus forecast remains close to 8.5% for 2008-09. More than the growth rates of the earlier years, it is an 8.5% growth rate in 2008-09- if it materialises, as I think likely- that will define in emphatic terms the turnaround in the Indian economy. The high growth rates upto now have been ascribed to the global bloom. To grow at the same rate in the midst of global turbulence will be some achievement.
- Higher than expected growth in 2006-07 changes one key fiscal number- the fiscal deficit as a proportion of GDP. It means that the fiscal deficit so defined was lower than shown earlier in 2006-07 and the forecast for 2007-08 will be surpassed. My guess is that despite the impact of the Sixth Pay Commission, the fiscal deficit target of 3% of GDP by 2008-09 will be achieved, although the off-budget subsidies on food, oil and fertilisers do understate the fiscal deficit.