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Old 12-23-2009, 02:01 PM
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Default Mukherjee Says India’s Economy May Expand 8% in FY10 (Update1)

Dec. 23 (Bloomberg) -- India’s economy may grow as much as 8 percent in the current financial year, Finance Minister Pranab Mukherjee said, adding he will consider removing some fiscal stimulus steps in the next two months.

“Recent economic data confirm that the green shoots are now finally taking root,” Mukherjee told a business conference in New Delhi today. “At this rate, in the next two-to-three years, our economy will resume the spectacular growth rate of 9 percent experienced during the pre-downturn period.”

India’s benchmark stock index rose the most in seven weeks after Mukherjee raised his forecast for India’s economic growth. India injected fiscal and monetary stimulus equivalent to more than 12 percent of gross domestic product between September 2008 and April this year as the world slid into a recession. That helped Asia’s third-largest economy to grow 7.9 percent last quarter, the fastest pace in 1 1/2 years.

Industrial production jumped 7.1 percent between April and October compared with a 4.3 percent gain in the same period last year. Faster growth is reviving investor confidence in the Indian economy, Mukherjee said.

The Bombay Stock Exchange’s Sensitive Index added 539.11, or 3.2 percent, to 17,231.11 at the 3:30 p.m. close in Mumbai, the most since Nov. 4. The S&P CNX Nifty Index on the National Stock Exchange rose 3.2 percent to 5,144.60. The BSE 200 Index increased 2.7 percent to 2,155.46.

Policy makers in Asia have started to exit monetary stimulus as the global economic recovery causes the focus to shift from reviving growth to fighting inflation. Australia and Vietnam have already begun raising interest rates as inflation accelerates across Asia.

Stimulus Exit

Mukherjee said he will decide on rolling back some of the fiscal stimulus in next year’s budget statement, scheduled for the end of February.
Stronger growth in the industrial and other sectors of the economy is likely to help bridge the shortfall in farm output, hurt by the weakest monsoon in almost four decades, Mukherjee said. Lower farm production has resulted in food-price inflation accelerating to the highest in 11 years.

That is creating pressure on the Reserve Bank to tighten monetary policy. Bimal Jalan, who served as the central bank governor between 1997 and 2003, said last week that excess cash should be drained from the economy to reduce speculation in commodities.

Chakravarthy Rangarajan, chairman of Prime Minister Singh’s economic advisory council and a former governor, said Dec. 21 that the cash reserve ratio must be raised if food prices don’t ease by the end of December. Persistent high food inflation may lead to wage demands and make manufactured products and services more expensive, he said.
Food Prices

An index of food articles rose 19.95 percent in the week ended Dec. 5, the most since 1998, the commerce ministry said Dec. 17. India’s benchmark wholesale-price inflation rate more than tripled in November to 4.78 percent from 1.34 percent in October.

“There is some speculative build up of expectations and I don’t believe that the present problems are a result of some serious monetary mismatch,” Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters in New Delhi today.
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