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  3. Growth beyond 7-percent without reforms will fuel inflation: Moody’s

Growth beyond 7-percent without reforms will fuel inflation: Moody’s

08 Mar 2013 Evaluate

Global rating agency, Moody’s has warned the government that pitching for gross domestic product (GDP) growth beyond 7 per cent to double digits without reforms will fuel inflation and lead to ‘more painful’ adjustments in future. In its report, Moody’s Analytics, said ‘some government policymakers, most notably RBI Governor D Subbarao, have begun pushing for a return to double-digit growth. This is wildly optimistic and, without significant structural reform, a dangerous view to take.’

Earlier this week, the RBI Governor had stated that a growth rate of 5-6 per cent is not sufficient for the country’s economy, especially when it has the potential to grow by double digits, provided some issues are addressed. 'If we do the right things, we can get back on track of the double digit growth,' he added.

Although, Moody’s sought to remind the country’s policymakers that the government in pursuit of double-digit growth three years ago had ‘kept policy settings too loose for too long, causing the economy to overheat’ which, in turn, led to the current problems of high inflation and a widening current account deficit.

As per the agency, policymakers should end any pretense that the economy can grow at 10-percent without fanning inflation. Anything above 7-percent (GDP growth) will lift inflation and result in a more painful future adjustment.

Indian economy is estimated to grow by 5 per cent this fiscal and the finance ministry has projected a growth rate of about 6.1-6.7 per cent in 2013-14. Moody’s ‘India outlook’ report has pegged the GDP growth at 6.2 per cent in 2013, up from 5.1 per cent in 2012.

The report pointed out that economic reforms announced since August are helping to lift corporate confidence and which should translate into better spending and capital expenditures from mid-2013, risks around the economy, particularly the fiscal and current account deficits, have begun to recede.

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