Agencies

Mumbai, Mar 7: The Indian economy whose growth struck a five-year low in the third-quarter this fiscal, is expected to recover post-September on the back of various stimulus measures announced coupled with the likely revival in the US economy, a top economist said.

“From October (2008) to September 2009, the growth will be slow...I believe that with the help of both fiscal and monetary policy measures, there will be a revival post-September,” chief economic advisor to department of economic affairs, ministry of finance, Arvind Virmani said in a seminar here on Friday.

An expected recovery in the US economy around September will also act as a catalyst to regain growth momentum, Virmani said. “Downside risks will be eliminated from the US economy from September this year,” Virmani said, adding that, “no country is insulated from the (global financial) crisis.”

For the third-quarter ended December, India’s economy grew at a 5-year low rate of 5.3% reflecting the fall in manufacturing and agriculture sector outputs and slowing consumer demand. A high fiscal deficit, projected at 6% in 2008-09 as against the earlier target of 2.5%, was a “good thing” in the short-term in the face of financial crisis, Virmani said.

The government’s borrowing is bound to increase in the backdrop of high fiscal deficit, Virmani said. “You cannot provide fiscal stimulus without increasing fiscal deficit and correspondingly increasing the borrowing of the Government. These are the two sides of the same coin,” he said.

The WPI-based inflation, now at 3.03%, is likley to recede to below 3% in March, Virmani said adding the country is unlikely to face deflation. “Inflation by March is expected below three per cent...(However) I do not expect deflation (in the Indian economy),” Virmani said.

While the global financial meltdown has had its impact on the domestic economy, policy-makers should look at this period as an opportunity to execute reforms including tax reforms, he said. The country’s dependence on net export income as a share to growth decreased in the last five years as compared to the previous five years, Virmani added.