Economy to grow by 8.5 pc in FY12: Rangarajan

Mumbai: Indian Prime Minister`s Economic Advisory Council (PMEAC) Chairman C Rangarajan on Thursday said he expects the Indian economy to grow by 8.5 per cent in FY`12 on the back of services sector and industry expansion, though he hinted that agriculture might not be a big contributor.

"It is my estimate that the Indian economy will grow at 8.5 per cent in 2011-12. The growth from agriculture may not be so high, but services and industry compensate for that," Rangarajan said at the 26th Skoch Summit in Mumbai.

However, he added, "It is prudent to aim at a growth rate between 9 per cent and 9.5 per cent. Pushing the economy beyond that will run into problems."

In its monetary policy for 2011-12 released earlier, the RBI projected the economy to grow by 8 per cent this fiscal, lower than the government`s original forecast of 9 per cent.

On inflation, Rangarajan said, "In the early decades of independence, the argument was that inflation was endemic in economic growth and led to very steep increases in prices. We should not let that happen in the years of high growth… (We must) re-anchor the inflationary expectations to the 4-5 per cent comfort zone."

He also cited rising inflation as a "disturbing element".

On food inflation, he said, "The last few months have shown a declining trend in vegetable prices and it is expected that inflation will come down in the coming months, even though it may remain at a high level for some time."

Food inflation shot up to 8.55 per cent for the week ended May 14, the highest level in four weeks, as prices of fruits, cereals and protein-based items escalated.

However, he was hopeful of seeing overall inflation coming down to 6 per cent to 6.5 per cent by March, 2012.