Prime Minister Manmohan Singh today said his government would try to halve inflation to 5-6 per cent by December and grow the economy by 10 per cent in the next few years.
I am confident that we will slow inflation to 5 per cent to 6 per cent by December. Prices continue to be a matter of deep concern, the Prime Minister told the media on the occasion of the first anniversary of UPA-II.
Singhs government had received wide praise for effectively managing the economy India grew 6.5-7 per cent over the last two years at a time when most of the world was in the grip of recession.
However, a runaway price rise is threatening to cut the growth gains and fuel popular disconent.
After touching double digits for much of last year, food inflation is decelerating it was 9.59 per cent in April and expected to drop more with good monsoon.
However, oil prices could still spoil the governments bid to tame prices and contain political dissent ahead of elections to four states next year.
The Reserve Bank of India has been raising interest rates to suck money out of the system to cool down prices and this could continue for some more time. RBI may not hold back key interest rates even if food and fuel prices fall because manufacturing inflation is still a big worry, said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy.
Singh said he expected the economy to grow 8.5 per cent this fiscal and our medium term goal is to achieve 10 per cent growth rate.
India will have to increase spending on social and physical infrastructure, besides raising farm productivity, which has reached a plateau since a green revolution in the 1960s and 1970s set the country on the path to food self sufficiency.
The Prime Minister sought a fresh impetus to the manufacturing sector. The government has drawn up ambitious plans for separate railway freight corridors from north to west and north to east, with industrial projects lined up along the way.
Analysts expect factory output, at 16 per cent in February, to stay in the double digits throughout this year. Pent-up demand on the back of wage rises and good farm incomes is expected to fuel growth of automobiles, refrigerators and other durable products.
The Prime Minister refrained from outlining any bold reform measures, possibly because his government depended upon the support of many parties that necessitated a consensus on issues such as opening up of insurance and banking.
Top officials said the government would continue with softer reforms such as those relating to procedures vis--vis foreign investment. Major changes, however, are on their way in taxes. Moves to introduce a uniform goods and services tax throughout the country is underway, and the finance minister had indicated that this could come next year. Similarly, a simplified direct tax code is expected shortly.
The government has divested stakes in several PSUs though many of the Congresss allies have reservations.
Sales of PSU stock are expected to accelerate in the years ahead, which can help to bring down the countrys fiscal deficit.