Prime Minister Dr. Manmohan Singh chaired a meeting of the Economic Advisory Council to PM here today. Dr. C Rangarajan, Chairman EAC to PM, made a presentation on the state of the economy, underlining the robust performance of the economy in 2006-07. He said growth was being driven both by an increase in consumption and in investment. He was confident that the Government would be able to adhere to its fiscal targets this year. He identified inflation as a key macro-economic challenge in the short-term. He said that steps already taken by the government and the Reserve Bank of India should be able to dampen inflationary expectations and bring respite on the price front. While global factors and rising demand had contributed to inflation in some sectors, supply constraints had contributed to a larger extent. Easing of the supply constraint through appropriate interventions in the real economy, lower tariffs, higher agricultural and industrial productivity would ease the price pressure.

Presenting an upbeat assessment of the state of the economy, the EAC reported that per capita income growth would be more than 7.0 per cent in 2006 and in 2007. This is for the first time in 15 years. Overall economic growth is expected to be close to 9.0 per cent this year. The EAC also reported a sharp increase in the savings rate to 35 per cent of national income (GDP). This was on account of an improvement in both private sector and government sector savings rate.

The Prime Minister said that the government was committed to reducing the rate of inflation through appropriate policy measures. He observed that while the global environment was currently conducive to sustaining India's higher growth rate, it was necessary to ease domestic constraints on growth.

Senior economic editors and analysts participated in today's meeting which was also attended by the Union finance minister Mr P Chidambaram. Participants agreed with the assessment of the EAC that inflation management was the key short term priority. They advocated further trade liberalization and other measures to increase the "competitive environment" in the economy. To sustain the growth momentum they called for acceleration of economic reforms, especially in agriculture and trade sectors. They called for increased investment in infrastructure, economic pricing of power, water and other scarce resources, reform of government and public sector, improving the efficiency and quality of public service delivery, especially in education, health care and rural extension services. Participants also emphasized the need to encourage growth of small and medium enterprises.