Buoyed by predictions of normal monsoon and better economic conditions, the government said on Wednesday that inflation in essential items was likely to decline further and pegged economic growth at 8.5 per cent this fiscal.
"The outlook is further brightened by the fact that a normal monsoon is predicted this year...Indications of softening of food inflation are clearly visible...inflation in essential commodities also declined...It is expected that this decline will continue in the coming months uninterruptedly," finance minister Pranab Mukherjee said in the Lok Sabha.

Initiating the debate on the Finance Bill, Mukherjee said inflation in essential commodities declined from the peak of 23.8 per cent in January this year to 19.8 per cent in March. "Indications of softening of food inflation are clearly visible. There has been a significant decline from the peak food inflation of over 20 per cent in December 2009 to 17.7 per cent in March 2010," the minister said.
He also indicated that the proposed Finance Bill may undergo changes. "I shall cover the reliefs we propose to grant, the amendments that we seek in the Bill and our responses to the issues that are raised in the discussions, in my reply," he added.

Pointing towards several improved parameters in the economy like industrial growth, investment, private consumption, capital markets and business confidence, corporate earnings, Mukherjee said the economy is expected to grow around 8.5 per cent this fiscal and 9 percent in 2011-12.
He, however, said demand recovery is yet to attain the "pre-2008 momentum". GDP growth had slowed down to 6.7 per cent during 2008-09 after 9 per cent in the previous three fiscals following the global financial meltdown.
After the government provided stimulus through tax cuts and stepped up public expenditure, coupled with the RBI its loosening strings on money supply, the economy is estimated to slightly improve to 7.2 per cent this fiscal. But 9 per cent growth could come only next fiscal. Hence, he pointed that full demand expansion is yet to take place.

He expressed commitment to reforms on direct and indirect taxes front. "I am happy to inform that in the case of DTC (direct taxes code), the process of consultation with the stakeholders for revising the first draft is almost over." He said a revised discussion paper is expected to be placed in the public domain by the next month and the draft legislation is likely to be tabled in Parliament in the monsoon session.
Mukherjee said the Centre is closely engaged with the empowered committee of state finance ministers in finalising GST, so that it could be introduced from next fiscal.
Meanwhile, the Lok Sabha also passed the Appropriation Bill for taking the approval of the House for the extra expenditure incurred during 2007-08.