India's economic growth in 2012-13 is likely to be higher than that of this fiscal as Reserve Bank Of India (RBI) might resort to interest rate cut ‘at some point in time’, the central bank's Governor D. Subbarao said.
"We expect growth to be higher in 2013 than in 2012, partly because at some point in time we might start easing the interest rate cycle," he told the online edition of Wall Street Journal in an interview last week.
He expects a number of factors, including market sentiment that inhibits investment, to improve by then.
In its bid to tame inflation, the RBI has hiked interest rate (repo rate) by 375 basis points since March 2010.
"...we give guidance in our quarterly policy statements in October and again in January, which is to say that the tightening has peaked, and from here onwards, it's that we've got to come down, that we have to start easing," he said.
While the RBI will put out a formal projection on India's economic growth for 2012-13 in April, the Prime Minister's Economic Advisory Panel today pegged it at 7.5-8.5 per cent.
As per the advance estimates of the CSO, the GDP growth in the current fiscal is likely to slip to 6.9 per cent from 8.4 per cent a year ago.
On fiscal consolidation and subsidies, Subbarao said only discretionary expenditure that the government can make in the short-term is on subsidies.
"And there is, I believe, quite a strong case for making adjustments on subsidies even from the anti-poverty perspective," he said, adding Finance Minister Pranab Mukherjee in his March 16 Budget is likely to indicate a roadmap for containing the fiscal deficit.
"If there is subsidy in LPG, it's a subsidy that's not going to the poor. It's a subsidy that's going to people who can afford LPG, which is certainly not the poor.
"Power subsidies are given by state governments according to people who have land, whereas the landless, who are poorer, don't get any subsidy at all," he added.
Subbarao also made a case for compression of government expenditure in addition to tax increases to build the fiscal adjustment.
On the global petroleum prices, he said India needs to reduce its dependence on oil imports and "one way to do that is to deregulate petroleum product prices".
To a query how much China weigh on India's economic analysis, Subbarao said "I think Chinese economic management, particularly their economic policies should be part of our reckoning more than it is now".