India said Saturday it was targeting "ambitious" nine percent annual economic growth as the central bank, in a surprise move, tightened monetary policy to avoid economic overheating.
Premier Manmohan Singh said lifting annual growth to nine percent from eight percent over the next five years was "ambitious but feasible" but poor farm output and decrepit infrastructure were "major constraints".
Longer-term, the Congress government has said it is aiming for at least 10 percent growth that economists say is needed to significantly dent poverty in Asia's fourth-largest economy of 1.1 billion people. But major trouble spots remain, including agriculture, which employs two-thirds of India's workforce and is "in crisis", Singh said in a speech to economic planners and state chief ministers in the Indian capital.
While the overall economy has expanded by more than eight percent annually during the past three years and is on track for a similar performance this year, agricultural growth has averaged less than two percent, he told the session examining the government's new economic five-year plan.
India's dilapidated roads, railways, ports and airports and the power sector also needed "massive" investment to ensure rapid growth, Singh said, adding the private sector would have to stump up much of the funds.
He stressed the need for "innovative plans" to ensure "minorities, particularly the Muslim minority", reaped the fruits of development. A recent study has shown that Muslims are more likely to be jobless, poor and illiterate than any other community in Hindu-majority India.
Singh's remarks came as the Reserve Bank of India boosted the amount of money banks must keep with the central bank, sucking out liquidity in a bid to fight inflation and stop the economy from overheating. The unexpected move to hike the cash reserve ratio by 50 basis points will drain 135 billion rupees, or three billion dollars, from the banking system, the bank said in a statement on its website posted late Friday.
The bank said the move was dictated by record 9.1 percent growth in the first half of the year, 30 percent credit growth, inflation of 5.3 percent - up from 4.5 percent a year ago, and "strains on domestic capacity utilisation". The move, which caught economists off guard, was the latest in a string of tightening steps that began in late 2004.