The reality has slowly started to sink in. Expert after expert has begun to jump onto the bandwagon. The latest to do so is Mr Basu, the chief economic adviser to the finance ministry. We are referring to the exercise of predicting India's GDP growth for the current fiscal i.e. FY12.
Talking to the media, Mr Basu has opined that the target that the Government has set for itself in February is getting increasingly out of reach. It should be noted that back then, the Government had forecast India's annual economic growth in the range of 8.75% to 9.25% for the fiscal year FY12.
However, only a couple of months into the projections and alarm bells have started ringing. Courtesy still higher crude oil prices, stubborn inflation and the possibility of higher interest rates, the trimming game was already on amongst the private economists. And now the Government too has moved into their camp.
Elaborating further, Mr Basu said that 9% growth is going to be tough especially if crude prices remain high. This is the most important factor that is spoiling the chances, believed Basu. Indeed. Unlike other resource rich countries, India is overwhelmingly dependent on imports for its energy needs. Not a good position to be into when energy prices are in gravity defying mode.
As per estimates, every US$ 10 per barrel increase in crude prices runs the risk of shaving off India's GDP growth by 0.3-0.5 percentage points.
Thus, what higher crude prices will end up doing is put the already grave situation on the inflation front in further jeopardy. Of course, we can live with both higher inflation as well as higher growth rates for some time. But it is not the right strategy to adopt as the correction that ensues from such a strategy can last for a long time, putting the long term economic growth at risk. Thus, the RBI is taking no chances and going in for tightening measures so that inflation is under control even if it means below par growth in the near term. This is the reason 9% growth in the current fiscal looks a little hard to achieve.