Thursday, August 17 2006 10:18 Hrs (IST) - World Time -

New Delhi: Allaying fears of a slow down in the economy owing to the rising interest rates, the Prime Minister's Economic Advisory Council has said that the overall growth still be high as investment and expectations remain buoyant.

The council headed by renowned economist C Rangarajan said that even as monetary tightening will curb a part of the leveraged consumer demand, the overall growth still be high.

While admitting the fact that tightening of credit market will definitely restrain consumption demand, the council in its report, however, said, this need not necessarily result in a growth downturn.

A consumption boom that lasts for a period has the potential to create an investment boom. In fact, the growth momentum can be accelerated if the government responds with a strong and credible policy to create a conducive climate for investment, the council said.

It said the government will have to supply more and better infrastructure. Investment in the infrastructure can come by way of direct public investment or through public private partnership.

Also, investment capital needs to be made available at reasonable rates of interest. A critical requirement for the government to reduce its fiscal deficit, particularly revenue deficit.

The council also cautioned the government for the maintenance of stable macroeconomic conditions as sharp increases in demand-supply gaps, together with increase in money supply can fuel inflationary spiral.