Growth to pick up from Oct, no deflation: Govt

New Delhi: India's economic growth will start picking up from October as government stimulus measures kick in and fears of deflation were unfounded, a junior finance minister said on Friday.

Pawan Kumar Bansal said the cumulative impact of last year's pay hike for government employees, a rural job scheme and a debt waiver for small farmers would help boost demand in an economy that has been hard hit in recent months by the global slump.

"Last year, our effort was to check inflation. We have succeeded in that. What is important now is to stimulate demand," Bansal said.

Growth is forecast to slow to around 7 percent in the 2008/09 fiscal year ending March 31, after growing at or above 9 percent in the previous three years, and analysts expected growth to slow to a seven-year low below 6 percent in 2009/10.

Annual inflation rate fell to 0.44 percent in the first week of March, and some analysts said there was a risk of deflation. "These fears of deflation are unfounded," Bansal said.

He said there would be disinflation for a few weeks, which reflected a sharp acceleration in the wholesale price index last year following price spikes in fuel and commodities rather than deflationary forces in the economy.

Bansal said measures taken by the government and central bank would come into play with a time lag. "We hope that from October onwards, growth will pick up," he said, adding this would help improve government finances by raising tax receipts.

The central bank has cut its benchmark lending rate by 400 basis points since October, and the government has cut factory gate duties and service tax rates and increased spending by 200 billion rupees to prime a slowing economy.

The government has forecast the fiscal deficit at 5.5 percent of gross domestic product in 2009/10, slightly lower than 6 percent estimated for 2008/09.

Last year, an industry lobby group estimated at least 10 million workers could lose their jobs in the year to March as corporates cut costs, but Bansal said the figure was not realistic.

"There could be some job loses in private sector. But there has been job increases in state-run companies, banks and insurance companies," he said, adding the stimulus measures were aimed at creating more jobs.