India's economy should expand by 5.5% to 6% this year: Chidambaram

India's economy should expand by 5.5 per cent to 6 per cent this year, and return to 7 per cent growth in 2013, Finance Minister P. Chidambaram told Reuters on Sunday, although he said inflation was at an "unacceptable" level.

"I'm looking forward to this year ending with 5.5-6 per cent growth, barring any unexpected shocks, and next year getting back to 7 per cent growth, and in 2014-15 getting back to 8 per cent growth," he said in an interview at a G20 meeting in Mexico.

The International Monetary Fund last month slashed its 2012 economic growth forecast for India to 4.9 per cent from 6.1 per cent previously.

But Mr Chidambaram was more optimistic and said India had the wherewithal to reach its economic potential.

"In 2004-2008 we had 9 per cent plus growth. It's not as though we have not done it before," he said. "We have slowed down thanks to the world and some domestic factors, but we are absolutely confident that we will get back to the higher-growth path."

The Finance Minister said he also concerned about inflation, which hit a 10-month high of 7.8 per cent in September.

"We must learn to live with some inflation, but inflation cannot be at an unacceptable level. Today it is at an unacceptable level."

The RBI left interest rates unchanged at 8 per cent last week, defying government pressure to lower rates for the first time since April.

Rate cut expectations had grown after Mr Chidambaram outlined a recent plan to cut the country's hefty fiscal deficit and boost growth. The bank's announcement failed to calm markets, pushing bond yields and swap rates higher.

The Reserve Bank of India cut its GDP growth forecast for Asia's third-largest economy this fiscal year to 5.8 per cent from 6.5 per cent previously. It raised its inflation projection in March to 7.5 per cent from a previous 7 per cent.

But Mr Chidambaram said that with a combination of monetary policy, spending cuts, and a tightening of tax collection, India could lower the deficit and foster growth.

"I'm confident that with determination, hard work, and some pain, we will be able to contain the fiscal deficit at 5.3 per cent," he added.

The Finance Minister also rejected the possibility that India might suffer a ratings downgrade, after rating agency Standard & Poor's recently said the country faces a one-in-three chance of a credit rating downgrade to junk over the next two years.

"India certainly does not deserve a downgrade and we are taking steps that will contain the fiscal situation."

Copyright Thomson Reuters 2012

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