Talking about the possibility of Indias economic growth reaching 10 per cent levels in the next 3-4 years,chief economic advisor Kaushik Basu said today that there is no reason for the Reserve Bank of India (RBI) to tighten its monetary policy in the review slated for the end of this month. The economist further said that India could clock a growth of 7.5 per cent this fiscal and could return to a high growth path of 9 per cent by the end of next year on the back of strong economic fundamentals including a high rate of savings and investment. Right now,there are no expectations of monetary tightening nor do I believe there is a reason for it. Because,as we are seeing,it is a very sector-specific inflation that is taking place, he told reporters on the sidelines of a seminar organised by the Federation of Indian Chambers of Commerce and Industry (Ficci) talking about steps RBI could take to tame food inflation. Food inflation stood at 19.8 per cent in the third week of December adding to the governments worry lines. Strong economic growth came to India on the back of high savings in the economy way back in the late seventies. A similar situation is seen today with the savings rate at 38 per cent. As has been talked of East Asian economies,Indias saving and investment rate will be key to its achieving a high rate of growth almost 9 per cent by the end of next year and 10 per cent over a couple of years if transaction costs are cut, Basu said. Dr Basu added that it was possible that Indian savings rate could cross 40 per cent in the next couple of years and high growth could come on the back of a high savings and investment rate. Some of the key reasons for high savings rate of over 20 per cent starting from late 1970s was the nationalisation of Indian banks followed by the governments direction to open more bank branches across India . The launch of mutual funds as an investment option by the Unit Trust of India (UTI) in the nineteen sixties also proved to be a vehicle for increasing savings in the economy especially for the middle class,Basu added.
