Indian economy not overheated, say CEOs

New Delhi, Dec 27: Seventy-four per cent of the country's top CEOs and CMDs believe that the growing Indian economy is not overheated and has the capacity to absorb eight to nine per cent growth for a long period, provided the supply side is managed well and domestic saving encouraged.

The Assocham Business Barometer (ABB) did a quick Survey of 280 CEOs and CMDs from different segments of the industry and financial market and posed them a straight question: Is the Indian economy overheated? As many as 74 per cent of them said while inflation has remained an area of concern for the government and the policy-makers, it would be far-fetched to come to the conclusion of stating the economy was too much stretched.

However, as many as 69 per cent said a continuous caution was required so that macro-economic stability was maintained to support pick up in investment and growth on a sustained basis.

''Most of the inflation related problems arise because of supply issues related to commodities like wheat and pulses. The answer lies in increasing the productivity and the output of the essential commodities by increasing investment in agriculture,'' Assocham President Anil K Agarwal said.

He said the industry body agreed with the forthright views expressed by Prime Minister Manmohan Singh stating that the dismal state of affairs in agriculture cannot be allowed to continue.

The root of the inflationary problem lies in the hardening of primary commodity prices. According to official figures, the contribution of the primary articles with a weight of 22.03 per cent in the wholesale price index basket was 28.8 per cent in the 34 weeks ending November 18, 2006.

In the primary products, a major contribution to inflation was made by cereals, pulses, potatoes, milk, condiments and spices and minerals.

Over 88 per cent of the respondents of the survey said while in the short-term, the supply of the primary products could be augmented by measures like reduction in customs duty, the answer lies in improving production of these essential commodities by giving a boost to agriculture.

Investment and focused attention in agriculture would not only help the distressed farmers but would also improve the supply side of essential commodities so that the critical question of food security is addressed.

''India should again become self-sufficient in food products,'' Mr Agarwal said.

While the overall growth in the first half of the current financial year has been 9.1 per cent, agriculture has remained subdued with average growth of 2.6 per cent in the last eight quarters.

Twenty-one per cent of the CEOs and CMDs included in the ABB survey did express fear of the economy getting overheated. They argued that besides the mounting problem of inflation, the mis-match between the investment and savings could lead to the problem of overheating.

They said it was critical that the country's fiscal deficit is curbed so that the resources can be better utilised for augmenting production and supplies rather than the money going into non-productive and non-plan expenditure.

An overwhelming response emerging from the ABB survey was that the Indian economy is not growing beyond its potential. As many as 79 per cent of the CEOs said it would be wrong to state that the eight to nine per cent growth could be straining the country's labour force and capital stock.

According to the mid-year review of the Finance Ministry, even the current account deficit was not a matter of concern at the present moment. It quoted the Committee on Fuller Capital Account Convertibility indicating that a current account deficit to GDP ratio of three per cent could be comfortably financed.

The argument was confirmed by the Approach Paper to the 11th Plan.

While 24 per cent of the respondents said that the RBI measures to curb excess liquidity was a welcome move, the majority of them said the central bank should not do anything that can stunt growth.

Over 89 per cent of the respondents said they saw interest rates going up further and this would have an adverse impact on the industrial growth. The RBI should strike a balance between the growth and inflationary expectations, they said.

UNI