5 per cent GDP below potential; policies needed to revive growth: Raghuram Rajan

NEW DELHI: Terming the CSO estimate of 5 per cent growth rate for this fiscal "below potential", Chief Economic Advisor Raghuram Rajan today said the country needs to pursue policies to push growth to at least 8 per cent.

"CSO's estimate of 5 per cent or 5.5 per cent growth (for 2012-13) is way below potential. We do need to up growth, we need to undertake policies that will enable us to reach at least to 8 per cent, which people think is lower bound for our potential growth," Rajan said while delivering lecture at a Symposium organised by Citi-MIT Sloan here.

As per the advance estimates of the CSO, which was released yesterday, the GDP growth rate for the current fiscal is estimated to be at 5 per cent, the lowest in a decade. The economy grew by 6.2 per cent in 2011-12 fiscal.

Rajan further added that there was some problem in CSO's estimate of GDP growth.

"One of the problem with the CSO estimate is that it is based on past data, and at turning points in GDP growth. Looking at past data underestimate change," he said.

The CSO's estimate was sharply lower than that of RBI and government which had projected the economic growth at 5.5 per cent and 5.7 per cent, respectively, for this fiscal year.

Rajan also stressed on the need to contain fiscal deficit. "We need to fix the fiscal deficit. We can't keep running large fiscal deficit and borrowing to finance it. This is where Finance Minister has made a firm commitment that this year's fiscal deficit will be 5.3 per cent," he said.

The government had earlier enhanced the fiscal deficit target for the current fiscal from 5.1 per cent to 5.3 per cent in view of higher expenditure for meeting additional outgo towards subsidies.

On widening current account deficit (CAD), which rose to a record high of 5.4 per cent of GDP, or USD 22.3 billion, in the July-September quarter of current fiscal, Rajan said: "CAD is certainly a source of concern. Currently we are running a large CAD, which we will have to manage."