With inflation declining to nine-month low, the Reserve Bank of India can now shift focus back to growth by slashing the key rates rate by one percentage point, Prime Minister's Economic Advisory Council chairman Suresh D Tendulkar said on Tuesday.
"Inflation has started declining. I see it (inflation) between 4 and 5 per cent by March, may be even before that . . . it is desirable to cut repo, reverse repo rates by 100 basis points," Tendulkar said at a seminar.
Inflation has come down to nine-month low of 6.84 per cent for the first week of December from a high of 12.91 (provisional) per cent in August following a series of fiscal and monetary measures taken by the government and the apex bank.
Besides, the oil prices fell, easing the rate of price rise.
Tendulkar further said the country's economic growth for the fiscal will be at least 7 per cent making it the second fastest growing major economy in the world after China despite the spill-over effects of the global financial meltdown.
"I do not see any reason why growth should go below 7 per cent. . . India's economic fundamentals are quite robust and its economy remains the second fastest growing in the world," Tendulkar said.
Scotching fears of recession in the economy owing to the global crisis, he said, "What we are experiencing in India is not a recession as in advanced economies."
"Our dependence on external markets either for capital flows or goods and services has been much less than that of China and other emerging Asian economies... Indian economy would not be affected to the same extent as some other emerging Asian economies," Tendulkar said.
Tendulkar said the financial meltdown in advanced economies has been very serious and has turned out to be much greater than expected and might affect the export-linked sectors 'much more than anticipated earlier'.
The recent policy and fiscal measures were aimed at propping up demand in the system, he said.
However, the Indian banks, though well-capitalised, are reluctant to extend adequate credits to the fund-starved units, the economist said.
He added that despite the huge FII outflows in the recent months, the foreign exchange reserve position of the country remains comfortable.
The country's current account deficit might be wider than in earlier years, "but well within limits to meet with capital flows from foreign direct investment, multilateral sources, NRI deposits and remittances", Tendulkar said.
The economic downturn is also likely to have an adverse impact on Indian micro, small and medium enterprises, which are already hit by lack of availability of cheap funds and high interest rates, he said.
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