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This is an archive article published on November 30, 2011
EU crisis may have slowed growth: Govt
No one-to-one correlation between monetary tightening and lowering inflation
The euro zone sovereign debt crisis has had an impact on the country and was evident from the slowdown in foreign investments and the fall in equity markets and was also a likely factor in the growth rate dipping below the 8 per cent mark in the first quarter of 2011-12.
In a written reply in the Rajya Sabha on Tuesday,Finance Minister Pranab Mukherjee said,The unfolding of euro zone sovereign debt crisis has impacted the country through slowdown in FIIs inflows,fall in the equity markets,slowdown in the growth of the IIP,decline in the value of rupee and a slowdown in exports in recent months.
He added that the government was keeping a close watch on the situation and that the sub-committee of the Financial Stability and Development Council FSDC was also making a continuous assessment.
In a reply to another query,Minister of State for Finance Namo Narain Meena said,The slowdown in the US and European economies could be one of the reasons for Indias growth slowing down to 7.7 per cent in the first quarter of 2011-12. The 7.7 per cent growth rate in the April-June period was the slowest experienced in six quarters.
Elaborating on the situation,Meena said that the persistence of high inflation and monetary tightening,along with a decline in the Index of Industrial Production IIP,could have caused slower growth in the first quarter of 2011-12. Besides,the global economic environment,particularly the lingering euro zone crisis,is resulting in added uncertainties.
Official estimates for economic growth this fiscal will be out on February 7,2012,the minister added.
During the Budget 2011-12,the economy looked poised to revert to the 9 per cent-plus growth trajectory,he said. The RBI had earlier projected that the economy will grow by 8 per cent this fiscal.
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However,it has since revised the projection downward to 7.6 per cent on account of the global slowdown and high domestic inflation.
The Indian economy expanded by 8.5 per cent in 2010-11. As regard the tight monetary policy and inflation,Mukherjee said that there is no direct correspondence between the quantum of increase in interest rates and fall in inflation. He also added that monetary policy measures are not aimed at merely controlling pressure from inflation.
Monetary policy rate hikes seek to affect the macro economy through a compression in aggregate demand and are aimed at not only controlling inflationary pressure but also inflation expectations… There is,as such,no direct one-to-one correspondence between the quantum of increase in interest rates and reduction in the levels of inflation, he said in a written reply.
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