Plan Panel, EAC lower growth projections; GDP to be lower by 1.5-2%

New Delhi, Nov 8 (UNI) Planning Commission Deputy Chairman Montek Singh Ahluwalia today said the growth rate of the Indian economy can be affected by 1.5 to 2.5 per cent in the next two years from the targetted level, depending upon the seriousness of the adverse global situation, even as Prime Minister's Economic Advisory
Council (EAC) Chairman Suresh Tendulkar said the Council can lower its forecast for the current fiscal from 7.7 per cent to around seven per cent.
The average targetted growth rate for the Eleventh Plan period is 8.38 per cent and it is for the first time that the economic advisors to the government were expecting a much deeper impact than ever before on the Indian economy of the global crisis.
Dr Ahluwalia was of the view that the adverse global situation could continue for about two years, thus impinging on the growth prospects of the Indian economy.
Dr Ahluwalia and Dr Sundaram made these comments to the media after participating in a seminar on ''Global economic slow down; implications for India'', organsied by the Planning Commission.
Dr Kirit Parikh, member Planning Commission, also gave his assessment of the situation.
Dr Ahluwalia said if one or two negatives could be eliminated from the global scenario then the decline of the growth rate would come down by 0.5 per cent to one per cent. These could be falling global commodity prices, lower rate of inflation and
an improvement in the Balance of Payments situation, primarily due to lower prices of imports,
Dr Ahluwalia, however, said the intensity of the lowering of growth rate would depend upon the domestic contra-cyclical measures that are taken by Indian authorities. These could be fiscal moves, including enhanced spending on infrastructre, and improvements in productivity.
Dr Tendulkar said in July the Council had projected a growth rate of 7.7 per cent in July, but in their next forecast seeing the magnitude of the global meltdown, the EAC may bring down its foreacast to seven per cent, ''notwithstanding a few decimals this
way or that way''.
At the seminar presentations were made by four premier research bodies -- National Council for Applied Economic Reserach (NCAER), Institute of Economic Growth, Indian Statistical Institute, Bangalore, and Indira Gandhi Institute of Development Research, Mumbai.
A presentation was also made by the Planning Commission team.
The seminar considered 20 different simulation model and four major models by the premier research institutes. The variables were different worsening situations of the global economy.
Asked how deep was the global crisis, Dr Tendulkar said the financial crisis was very deep, however, the impact on the real economy was difficult to assess.
He said there was a crisis of confidence all over the globe, the worst hit being the business community.
Dr Ahluwalia said it is from the third year that the clouds of the global meltdown would wither away.
However, all models that were presented this morning came to one conclusion that the long term prospects of the Indian economy continued to be bright and stable as compared to the rest of the world.
The two economists clarified that it was a mistake to say, as was being done in certain quarters, that the Indian economy is in a recession. He said the possibility so far is that only the United States and Europe are in recession, which means a negative growth in
the National Income.
On the other hand, the Indian economy was experiencing a decline in growth rate.
Some of the other points that emerged at the seminar are; public savings rate may decline; interest rates may collapse; the adverse Balance of Trade (BoT) may be countered by a price crash; the world recession would continue in 2009; next two to three years are bad for the world economy and employment in the United Kingdom may be
severely affected.
The economists attending the seminar said impact on India will mainly be due to a slowdown in export and reduction in foreign flows.
They said so far exports from India have fallen by as much as seven per cent in dollar terms and there was a 20 per cent fall in each of the components of foreign inflows. Primarily these are remittances; net factor income; government's foreign borrowings and foreign savings.