Basu warns of high inflation,slower growth after 6 months

The Indian economy is expected to slow down to a 6.9 per cent growth in 2011-12 after registering a healthy clip of 8.4 per cent GDP growth in the previous two fiscals.

Finance ministrys chief economic advisor Kaushik Basu on Friday warned that inflation will rear its head and growth will start slowing down (further) if political and economic alignments are not in place to give economic reforms a push.

…the next six months are very important for political and economic alignments to come into place. Otherwise over the next one and a half to two years,inflation will rear its head and growth will start slowing down, Basu said addressing the Annual General Meeting of the International Chamber of Commerce on Friday. If the alignments work,India will get back to the buoyant growth that we witnessed earlier,he added.

The Indian economy is expected to slow down to a 6.9 per cent growth in 2011-12 after registering a healthy clip of 8.4 per cent GDP growth in the previous two fiscals. For 2012-13,finance minister Pranab Mukherjee has estimated the economy to grow at a modest 7.6 per cent (+/- 0.25 per cent).

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With the slowdown in economic activities over the past one year,Mukherjee focused on reviving growth and containing the fiscal deficit in his Budget for 2012-13. He is hopeful that reforms on subsidy and multi brand retail would help contain the deficit as well as inflation that has been targeted at an 5.1 per cent and an average of 6.5 per cent,respectively in 2012-13.

Basu said that forming political and economic consensus would help move towards reforms.

We have to take crucial reforms, Basu stressed.

The government is hoping that it will be able to get political parties as well as states on board for long stalled reforms such as deregulation of diesel and fertiliser prices as well as introduction of the goods and services tax. Basu noted that policies should be designed in such a way that subsidies reach the targeted groups directly without the massive leakages that are currently seen.