Finance Minister Pranab Mukherjee on Friday said the rural spending would not be affected by the drought situation caused by delayed monsoon, but was likely to improve due to the government's flagship National Rural Employment Guarantee Scheme.
He said there would be some revival in the third and fourth quarters though the overall growth would be moderate, with the current year recording a growth rate of 6 per cent.
Mukherjee said the economic situation had improved and manufacturing and housing activity had picked up, but it was not adequate to compensate the loss of business in the export sector. "The economy has started recovering but it is very modest," he told reporters.
The finance minister cited June figures for the index of industrial production, stating there were signs of improvement. He, however, added that unless there was strong recovery in developed economies, it is not possible to have a quick recovery.
Hoping that industry would follow the growth trend of July, which saw factory output rising by 6.8 per cent, Mukherjee said it was imperative to give the stimulus packages to help economy fight the effects of global financial turmoil and this resulted in higher fiscal deficit.
"If the stimulus was given, it was a one-time measure. One cannot expect this would be repeated every year... Had I not reacted, my fiscal deficit would not have gone high," he said.
He said though there were concerns surrounding drought, the country was in a position to handle the situation since there was enough food stock available. He said the late rains would help in sowing of short duration crops and early rabi crop.
Expressing concern over the fiscal deficit, the minister said, "We cannot continue to have a 6.8 per cent deficit. This level of deficit is unsustainable."
According to him, the government's strategy of increased spending has paid off but spending has to be curtailed.
