GDP growth at 6.1 per cent during the first quarter of 2009-10 versus growth of 5.8 per cent in the previous quarter and 7.8 per cent in the same period of the previous year has raised hopes that an economic recovery is on the cards, said the report.
“The GDP numbers indicate that the economy has bottomed out”, said Chandrajit Banerjee, Director General, CII.
When compared to countries across the world, India stands out as one of the best performing economies. Although there is a clear moderation in growth from 9 per cent levels to over 6 per cent, the pace still makes India the fastest growing major economy after China. “Timely interventions with counter-cyclical fiscal and monetary measures are helping the economy recover from the worst global crisis since the great depression”, said Banerjee.
According to CII, the growth outlook for 2009-10 has definitely improved from what was envisaged earlier. In its State of the Economy report, CII had earlier raised its growth outlook for 2009-10 to 6.5-7.0 percent. However, the weak 2009 monsoon has emerged as a key challenge to this outlook. Also, the government’s massive borrowing program has hardened bond yields and rising interest cost could pose a challenge to sustaining the current recovery.
The RBI faces a dilemma as the risk of higher inflation caused by higher food and commodity prices poses a challenge to its current expansionary monetary stance. However, CII strongly feels that any hike in interest rates in this situation would stall the recovery process which is still at a nascent stage.