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He said that India has the potential of growing at 9 per cent in a sustained way. Rangarajan, a former governor of the RBI, said that India`s savings rate has crossed 34 per cent of GDP, while the investment rate exceeds 36 per cent. "Even with an incremental capital-output ratio of four, the Indian economy will be able to grow at 9 per cent in a sustained way," Rangarajan said at an event here.
Referring to broader macro-economic concerns, he said that the target of keeping the fiscal deficit at 4.6 per cent of the GDP for 2011-12 would be difficult. In this context, he said that the government should take a look at its expenditure, particularly subsidies
Over the medium-term, the government`s aim would be to achieve the fiscal responsibility and budget management (FRBM) target of 3 per cent of the GDP. Rangarajan said the two sectors of the economy that pose a major challenge were farming and power. He said on the face of falling yields of major cereals in the country, steps would have to be taken to improve productivity.
"The last two years have clearly shown decline in farm production. The agriculture sector should grow at 4 per cent," he said. Referring to the power sector, he said that capacity addition would have to be made aggressively as shortages result in production losses and affect profitability and competitiveness.
Rangarajan also said that supply side constraints would have to be addressed to check inflation. He said food stocks lying in the government warehouses should be released in the market so that food inflation is brought under control. In addition, appropriate monetary instruments will have to be used to check demand, he said.
