Mid year review pegs GDP growth in H1 at 9.1%, stresses reforms

New Delhi, Dec 19 (UNI) The Indian economy grew by a hefty 9.1 per cent from April to September, 2006, spured by strong manufacturing growth, but the government expressed concerns about its possible overheating and creeping inflation.

During the first six months of the current fiscal industry grew at a smart pace of 10.9 per cent and services by 10.7 per cent, according to the Mid-Year Review of the Economy placed today by Minister of State for Finance S S Palanimackam before Parliament.

The Review, however, raised concerns about possible overheating of the economy and said maintaining macroeconomic stability was key to promoting investment and growth.

The disappointing feature was the slow growth of the agricultural sector at 2.6 per cent during the period and the Review said the Minimum Support Price (MSP) mechanism has not delivered the desired results.

''Indeed there is need for continuous caution in maintaining macroeconomic stability to support the pick up in investment and growth on an enduring basis. This is particularly so in the current conjuncture with large global macroeconomic imbalances and uncertainty in currency markets,'' the Review said.

It, however, felt that concerns on high growth and creeping up of inflation in manufactured products did not warrant alarm.

The document by the Ministry of Finance stressed the need for labour reforms and regulatory framework in different sectors, particularly mining.

The document favoured a review of the flexibility or its lack in the existing labour legislations.

The Review said a regulatory framework for the mining sector was part of the unfinished agenda of Reforms.

"There is a need for a clear separation of price support to farmers and procurement by the states on the one hand and subsidy to the poor citizens on the other," the Review said.

Speaking about the weaknesses of the infrastructure sector, the document favoured user charges to promote investment. Using a figure put out by Prime Minister Manmohan Singh, the Review said its investment needs were in the region of 320 billion dollars during the Eleventh Five Year Plan period (2002-07). It listed power and water supply as the main areas of concern.

It suggested a revisit of the subsidies regime as it has failed to reach the targeted beneficiaries due to tardy delivery.

Calling for a patinership between the Centre and States, the Review gave instances of some best practices for delivery of subsidy such as food stamps and smart cards. These ideas need to be tried on a pilot basis.

''Weak infrastructure continues to be the Achilles Heel of the Indian economy... Fiscal space needs to be created by cutting down revenue expenditure, including subsidies, to enhance public investment in specified infrastructure where cost recovery is not possible," the Review said.

Funding of infrastructure sector would entail financial sector reforms to provide long-term money for these projects. It would also require the development of a vibrant bond market and pension and insurance reforms.

"A single unified exchange-traded market for corporate bonds would help create a mature debt market for financing infrastructure," it said.

India, often regarded as Asia's fourth-largest economy, has grown at an average rate of 8 per cent in the last three years.

Inflation is growing at an annual rate of 5.16 per cent.

The telecommunications sector saw an annual average growth of 27.1 per cent from 2000 to 2005, the review showed.

Inflation accelerated from 4.1 per cent at end-March 2006 to 5.5 per cent on June 17.

Finance Miniser P Chidambaram called for pre-emptive measures to rein in inflation.

He attributed the uptrend in inflation to inadequate supply of commodities like wheat and pulses.

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