Chairman of the Planning Commission 7% Montek Singh

Deputy Chairman of the Planning Commission, says the November industrial growth results are better than expected. He says that given Indian industry's performance, it is quite likely that growth estimates could be raised to above 7%. "I wouldn't go as far as 7.5%, but definitely 7% or a little more is quite likely this year." In data that came in yesterday, the Index of Industrial Production (IIP) for November grew by 11.7% since last November. As compared to the last month, the IIP grew at 10.3%. The IIP growth rate in November 2008 was at 2.5%. 
C Rangarajan, the Prime Minister's Economic Advisor, told Reuters that he expects India's economic growth in FY10 to be around 7-7.5%. "These are encouraging signs. It shows the economy is growing strongly and growth forces are robust. We should expect the overall economic growth at 7-7.5% in the current financial year," Rangarajan said at a banking conference. Below is a verbatim transcript of the interview. Also watch the video. 

Q: With inflation at 4.7% and food inflation above 18%, has the time come to wind down the stimulus or would that in your opinion be a hasty and unwise decision?

A: There is no doubt that economic growth has picked up. It’s also true that inflation has edged up. I wouldn’t necessarily conclude from that that you do A or B vis-à-vis the stimulus. The whole issue of judging what to do with the stimulus and how to run it down – it is something that they should take a view at when they are more or less preparing the budget. But we had said right at the beginning that sometime in the course of the year we would begin to slowly wind it down. I think what has happened is on course for that decision. But exactly what? It’s too early to say. 

Q: If I read between the lines correctly – you are also suggesting that one shouldn’t directly one-to-one link inflation with stimulus. One should look at them separately and perhaps tackle them separately as well? 

A: I think nothing should be linked one-on-one with the policy. There are many factors that are involved. The bottom line is that inflation has edged up – policy in the course of the next year has to take that into account. The real concern is with food inflation and the factors driving that are really supply side factors and expectations.

My expectation is – that has been happening a little bit – that food inflation rate is coming down and I expect that to continue to happen.  

Q: Lets look at these two therefore separately simply for reasons of analytical clearness and ease. Let’s begin with some concerns about the recovery. People say that the key issue is will raising key interest rates damage the recovery? Let me quote to you, Chandrajit Banerjee, the Director General of Confederation of the Indian Industry writing last week in the Business Standard. He says. “It is uncertain if recovery can be sustained in the event of a withdrawal of monetary stimulus.” His reason is very simple, he says that the areas that are doing well are driven by consumer demand, which he says, is very sensitive to increases in the interest rates. Would you agree with that analysis?

A: When he says increases in interest rates, I assume he is referring to the interest rates that the Reserve Bank of India (RBI) fixes – the repo rate. The linkage between the short-term repo rate and what happens to the interest rate structure – there are many steps involved in that. In any case on the monetary side, the interest rates are not the only instruments that the RBI has. If there is a lot of liquidity in the system and they just want to rein it in – they can use the other instruments, like for example the cash reserve ratio (CRR) that people have talked about.

I don’t want to second guess what the RBI will do. We will know within 10 days or so. I think the concern about interest rates should be focus on the long-term interest rates and not the short-term interest rates and what drives the long-term interest rates is really the overall flow of funds into the economy, the size of the fiscal deficit etc.

Source: http://www.moneycontrol.com/news/economy/see-fy10-gdp-growth-estimates-upped-to-over-7montek-singh_435345.html