Prime Minister Manmohan Singh on Tuesday said the economy is expected to grow by 8.5 percent this fiscal, but sounded caution on global developments saying there are "uncertainties on the horizon."
In his remarks on the first anniversary of the UPA-II government, he, however, said he was cautiously optimistic about the year ahead.
Without mentioning the threat to growth from the European sovereign debt crisis, Singh said, "This (India's growth) is one of the best performances in the world... There are uncertainties on the horizon, but on the whole I look to the year ahead with cautious optimism."
India recorded 7.4 percent growth in 2009-10, which was more than the 7.2 percent projected earlier.
Economic growth had slipped to 6.7 percent in 2008-09, after four straight years of average 9 percent expansion.
Concerned over inflation, which breached double digit level (10.6 percent) in February, the Prime Minister said the government would monitor the situation and "take whatever corrective steps are necessary to rein in" prices.
Although he sounded cautious on the developing crisis in Europe, triggered by Greece's sovereign debt crisis and bank failures in Spain, the Prime Minister said India must withdraw fiscal stimulus to boost economic growth and reduce deficit in a calibrated manner.
The government resorted to fiscal stimuli to deal with the fallout of global slowdown. "It has worked well, but now we must return to the path of fiscal prudence."
The country's fiscal deficit is estimated at 5.5 percent of GDP this fiscal, but may come down on higher than expected revenues (nearly Rs one lakh crore) from sale of 3G telecom and broadband wireless licences.
In the Budget for 2010-11, the government increased excise duties and duties on fuel as a part of withdrawal of stimulus unveiled in the wake of the 2008 global crisis.