GDP seen growing at decade-low 5%

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SummaryConsumption & investment stagnation stultifies demand.

the Budget will be presented.

While recent reform measures like partial decontrol of diesel prices and the steps being taken to rev up investments in infrastructure have inspired Indian and domestic investors and reduced the threat of a sovereign rating downgrade, the debate over the economy’s structural bottlenecks have intensified after the latest GDP estimate. While the RBI had earlier said India’s growth potential has come down to around 7%, a senior International Monetary Fund official on Thursday said it would take India some tough decisions and several years before it can think of going back to a growth era of 8% and more, which was an easy walk through till a few years ago. The IMF had on Wednesday said India’s growth rate would drop to 5.4% this year.

The RBI in its outlook released on January 28 projected the GDP growth in 2012-13 to be 5.5%, while finance minister P Chidambaram had projected 5.7%.

Chidambaram, who has set for himself a target to reduce the Centre’s fiscal deficit to 5.3% for the current fiscal, had ordered spending cuts in welfare, defence and road projects. No wonder, according to the latest GDP estimate, growth in government expenditure is on track to moderate to about 4% in 2012-13 from 8.6% a year ago, while private consumption expansion has been forecast to halve to 4% in 2012-13 over the previous fiscal. Growth of gross fixed capital formation — a proxy for investment in the economy — is projected to fall to 2.48% in 2012-13 from 4.4% in 2011-12.

The CSO data showed that the economic slump could be deeper than anticipated, with across-the-board slowdown in sectors including agriculture, industry and services. Bond yields fell sharply on Thursday, in expectations of deep rate cuts from the RBI at its monetary policy review scheduled next month. The Stock markets largely ignored the GDP data, with the benchmark BSE Sensex ending down 0.30% at 19,580.32 points on Thursday. The government on Thursday successfully raised about Rs 11,400 crore through its disinvestment in NTPC — the largest stake sale in 2012-13. Analysts expect the government to contain the fiscal

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