India’s chief statistician TCA Anant dismissed suggestions that country did not have the absorptive

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capacity to grow beyond 8.5 per cent and that the inflation now at uncomfortable level is not worrying because it is due to redistribution of purchase power to rural poor.

“I do not subscribe to the view that there is formal limit to growth… People take snap shot picture and project it as permanent picture of the state of the economy,” Anant told Financial Chronicle when asked if 9 per cent growth is beyond absorptive capacity of the Indian economy.

Former Reserve Bank of India governor YV Reddy, who steered the country’s monetary policy during global economic crisis, had recently said India should be growing only at 8.5 per cent and the present inflation was due to overheating of the economy due to high growth of over 9 per cent for three years earlier. India’s economy grew at nearly 9.5 per cent for three consecutive years between 2006 and 2008 and Reddy raised policy rates by 300 bps to 9 per cent to fight inflation that shot up to 12.5 per cent in early August of 2008.

“I do not know the context in which he (Reddy) is saying…. But there is no formal limit to growth in that sense… If he is saying that at present India cannot grow beyond 8 - 8.5 per cent there is merit in it,” Anant said, adding, “I will have one reaction if you say growth will be 8-8.5 per cent this year. Why should I hold to that situation next year as the Indian and global settings change.”

Anant said he was not “particularly perturbed” with the present cycle of inflation. “I view it as natural consequence. If the growth takes place along with factors that promote inclusiveness, there will be a rise in demand for various consumables and you may get short-term pressure on inflation.”

Inflation has been stubbornly high for last two years and had breached double-digit mark more than once during the period. The latest monthly inflation was put at 9.06 per cent in May this year.

Economic growth is a complex factor and needed a variety of adjustments; Anant said adding the country will constantly have trade-offs between growth and inflation through mix of policies. “There are number of factors that underlay the current inflationary setting. One is global, second is domestic. You had prior to 2004-05, two or three years of high growth. It led to capacity creation not necessarily redistribution of demand. Post 2004-05, there are a number of policies like national rural employment guarantee scheme and there has been an attempt to effectively redistribute purchasing power to rural and lower income groups. This has led to enormous spate of demand emerging from these areas,” he said.

“Availability of labour in such settings is scarce. There has been growth in employment as well as withdrawal of labour force from categories from which you withdraw when household income increase. My sense is things are consistent with this pattern. In short-term, monetary mea-sures are needed to be taken and in the medium-term, policy measures to ease up supply bottlenecks. A combination of these policies will recreate another opportunity to expand growth,” he said.

Investments by companies are partially influenced by interest rates. They are also influenced, a great deal, by long-term projections and long-term interest rates. Also, there have been times in the past when interest rates were high without investment being choked up, Anant said.