New Delhi: Projecting a critical picture of present Indian economy, Finance Minister Pranab Mukherjee on Wednesday informed the Lok Sabha that fundamentals of the Indian economy are strong despite concerns of inflation and growth.

While replying to the discussion on the second batch of Supplementary Demands for Grants (General) 2011-12, the Finance Minister said, “The economy is at a difficult situation but ...the basic fundamentals of the Indian economy are still strong.”

In was for the first time after months together that Mukherjee admitted that the UPA-II had committed a mistake in ascertaining the state economy. "Except for one country in the second quarter of the current fiscal, that is Turkey, no other country of comparable size has a higher growth," Mukherjee added.

India has recorded a growth rate of 6.9 percent in the second quarter. It may slip to 7.5 percent in the current fiscal from 8.5 percent in 2010-11.

In context to the price rise, he said that food inflation has come down from 22 per cent in February 2010 to 8 percent in November 2011 but there is a need to bring it down to 5-6 percent.

"I accept that 8 percent inflation is still high but you cannot say that nothing has been done", Mukherjee said, adding that the retail prices of many essential commodities including rice and wheat have remained stable during the last two years even as the government has increased the minimum support price of those grains.

Admitting that the issue of subsidy has become a matter of serious concern he said, “Subsidy outgo has increased during the current fiscal.”

While the burden of fertiliser subsidy has increased to Rs 90,000 crore from Rs 40,000 crore estimated earlier, the under-recoveries of oil marketing companies are projected to go up to Rs 1.32 lakh crore in 2011-12.

Rejecting the Opposition's argument that fiscal deficit is increasing due to decline in direct and indirect tax realisation, Mukherjee said, "it is not true. Direct tax (mop up) increase has been 22 per cent. Indirect tax (growth) is also 22 percent plus."

However, he added, "Net direct tax (collection) has been less...due to higher refunds at Rs 68,000 crore so far this fiscal compared to Rs 27,000 crore in 2010-11."

Although the higher upfront refunds have created a problem of a cash management, the situation has improved from November onwards, he said.

The devolution of taxes has helped the states and all state governments, except for three, have cash reserves of between Rs 90,000 crore and Rs 1 lakh crore, Mukherjee said, adding that it was the centre which was having some cash problems.