Column : A growth budget all the way
MK VENU: Feb 20 2013, 01:10 IST
While projecting all the budget numbers relating to revenue and expenditure, the finance minister has to necessarily make two key assumptions�those of GDP and inflation for the financial year. In normal times, typically in the middle of a business cycle, making projections for GDP and inflation is quite easy. For instance, the period between 2003 and 2008 was marked by a relatively stable inflation rate of 4% to 5% and real GDP growth of above 8%. So, the finance minister, during this period, would have found it easy to project the GDP and inflation numbers for budgeting purposes.
However, at the present juncture, it will be very difficult to project these numbers for 2013-14. This is simply because GDP growth has rapidly slumped from a high of 9.3% in 2010-11 to an estimated 5% in 2012-13. Such a sharp decline in a short period has not been seen since 1991. Similarly, inflation, though trending down this year, remains fairly elevated at over 7% as per the WPI index. Manufacturing inflation, of course, has come down close to RBI�s comfort zone of around 4%.
We appear to be at the end of the down cycle for GDP. So, what GDP number should the finance minister project in the budget for 2013-14? Given the spate of reforms and tough economic decisions taken recently, followed by an upturn in sentiment, P Chidambaram might be tempted to be a bit ambitious and project 7% GDP growth in 2013-14. If the revenues are predicated on 7% GDP
Previous Story Column : Is depreciation different from QE? Next Story FE Editorial : Twin deficits again
Reader's Comments (2)| Post a Comment
