GDP growth at 9.2%;Inflation worrisome,caution on convertibility

New Delhi, Feb 27 (UNI) Expressing concern on the surging inflation, the Economic Survey 2006-07 pegs the GDP growth rate in the current fiscal at 9.2 per cent and maintains that growth needs to be pushed further, but calls for a cautious approach on capital account convertibility.

The survey tabled in Parliament by Finance Minister P Chidambaram exudes confidence at the sustainability of the current growth phase and ability to manage inflation.

On overheating, the survey suggests a two-pronged approach to overcome it: Rapid growth in capacity addition and managing merchandise imports within safe limits.

The survey says the former can be managed through investments to avert the problem of capacity constraints. The other indicator of over-heating, namely merchandise import growth, also ''appears to be within reasonable limits.'' ''Concerns have been expressed about whether the country is growing beyond its growth potential thereby straining its labour force and capital stock and hence engendering inflationary instabilities. In India, with unemployment both open and disguised, concerns over over-heating are connected more with capacity utilisation and skill shortages,'' the survey says.

"Vigorous growth with strong macro-economic fundamentals has characterised developments in the Indian economy in 2006-07 so far.

However, there are some genuine concerns on the inflation front.

Growth of 9 per cent and 9.2 per cent in 2005-06 and 2006-07 respectively, by most accounts, surpassed expectations." The survey, however, admits that in the current year pressure on inflation could persist because of a mismatch in supply and demand of some primary articles and firm international prices.

The survey lists the pressure points on prices. Foremost in this regard are the supply side constraints, particularly of agricultural commodities. The other factors are higher demand as a result of an accelerated growth in GDP, higher growth in reserve money because of faster increase in foreign assets, the multiplier effect of increase in broad money and rapid credit growth. These have exerted presure on demand side.

Listing the steps taken by the government to bring down prices, the survey says their impact on inflationary expectations will be visible in the days to come.

The steps by the government include duty reductions in some essential commodities, metals and cement and the monetary stance of the RBI, such as hikes in repo rate and CRR.

''However, unless the supply side constraints - especially in food items - are removed, inflationary pressures will not be tamed fully,'' the survey says.

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