FM's growing pains

Finance Minister Pranab Mukherjee in an effort to allay concerns on the Indian growth story met journalists at the ministry's headquarters in New Delhi on Wednesday. In a first meeting of its kind organized after the Budget - where the finance minister met a wide group of journalists from magazines and newspapers - he remained fairly elusive on a host questions on India's growth and inflation.

On a day when India cut its growth forecast for this financial year to 8.6 percent from 9 per cent on weak industrial data and a spate of interest rate hikes, the finance minister, who had been confident of maintaining the growth momentum, remained cautious while tackling questions on a looming slowdown.

A finance ministry statement said, "Given the capital output ratio and the dynamics of growth, it is therefore expected that growth would be close to 8.6 per cent in 2011-2012."

The finance ministry said that slowdown in headline year-on-year growth rates on a quarterly basis, lower IIP numbers, slowing automobiles sales suggest growth outlook for 2011-2012 may be lower and that corporate investments are slowing.

The finance minister, however, did not hazard a guess on India's GDP for the current fiscal.

"Where growth is concerned, there is a downward trend in the last two quarters of 2010-2011. People are expecting there will be a spillover effect, but I will not indulge in a forecast for the GDP of the year of 2011-2012," said the minister.

"Fortunately our economy is substantially domestic demand driven, that's why I am a little optimistic that reasonable rate of growth is possible," he added.

As the government tries the balancing act between growth and inflation, the finance minister said that "cynicism is uncalled for."

The minister is slated to meet industry heads on August 1 to discuss steps for re-energising the economy. Among industry leaders, Mukesh Ambani of Reliance Industries, Kiran Mazumdar Shaw of Biocon, Ratan Tata of Tata Group, are expected to attend the meeting.

Expressing concern on inflation, which continues to be uncomfortably high - headline inflation accelerated to 9.44 percent in June - Pranab Mukherjee said, "There will be some variation; it is possible for inflation to settle between 6-7 per cent by March 2012."

The Reserve Bank of India has raised rates ten times since March 2010, and in all likelihood is expected to raise rates again by 25 basis points at its policy review on July 26.

The government is confident of bringing down inflation to 6 per cent by March 2011. Mukherjee also said India's exports growth may not be sustained on concerns over Eurozone debt woes. India's exports in June rose an annual 46.4 per cent to $29.2 billion.