Growth facing overheating threat, warns Montek

NEW DELHI: The Planning Commission has now raised questions about the sustainability of the high GDP growth rate in the long term with the economy showing signs of overheating. This comes close on the heels of similar apprehensions by the PMO.

“There are signs of overheating in the economy and the 9% economic growth is putting pressure on inflation,” deputy chairman of Planning Commission Montek Singh Ahluwalia told reporters here but said the upswing in the economy was unlikely to continue in the long run.

Moving in the high-growth phase, the GDP (as per advance estimates of CSO) is expected to grow by 9.2% in 2006-07. However, the growth comes at a time when inflation has spiked and is hovering over 6%.
Overheating is a reflection of the fact that demand is pushing ahead of capacity in certain sectors and in turn leading to rise in prices, Mr Ahluwalia said after a meeting between a group of ministers and Left party leaders on FDI limit in the insurance sector.

Asked whether the present situation demanded a relook at the growth target of 9% envisaged in the Eleventh Plan, he said measures to curb inflation may put pressure on high growth initially, but on an average the targets would be maintained.

There are upswings and downswings in growth, but in the five-year period till 2012, it was still projected to be 9%, he said.

Prime Minister Manmohan Singh had, on Monday, met all the Planning Commission members to review economic performance particularly in power, agriculture and education. The concern is basically to ensure supply-side constraints are removed so that the high growth momentum is maintained even while having a higher GDP growth.

The approach paper, which was approved by the National Development Council in December last year, has set a target of 9% average growth in the Eleventh Plan (2007-12) with the terminal year targeted to witness 10% growth.