Indian economic growth forecast slashed: Mid-Year Economic Analysis
In its Mid-Year Economic Analysis, which was tabled in Parliament today, the government lowered the economic growth estimate for 2012-13 to 5.7-5.9 per cent, from 7.6 per cent projected in Economic Survey in March.
This would be the lowest growth since 2002-03, when the economy expanded by a mere 4 per cent. In the 2011-12 fiscal, the economy expanded at 9-year low of 6.5 per cent.
The challenges before the economy, the document said would be to meet revenue realisation, disinvestment target, and contain fiscal deficit at 5.3 per cent of GDP.
Briefing reporters, Chief Economic Advisor Raghuram Rajan said: "Slowdown has bottomed out. We anticipate that with the positive momentum that we see build up, we will see 6 per cent growth in second half which will take up the growth for full fiscal to 5.7-5.9 per cent". It grew by 5.4 per cent during April-September 2012-13.
He suggested a three pronged strategy – confidence inducing Budget, speeding up clearance for projects, and further steps in capital market reform -- to boost investor confidence and propel growth momentum.
The document, which was released a day before the Reserve Bank's mid-quarter review, has pitched for supportive monetary and fiscal policies to improve investor confidence.
It said there "are reasons to believe" that the slowdown has bottomed out and economy is headed towards higher growth going ahead.
Referring to inflation, it said, further moderation in price rise is likely to commence from the fourth quarter of the fiscal.
"Inflation at the end of March 2013 is expected to moderate to 6.8-7 per cent level," it said.
As regards fiscal deficit, the document said, restricting it to 5.3 per cent of GDP is a challenging task given the uncertainty on disinvestments, higher subsidy outgo and subdued tax collection.
"5.3 per cent is a tough target. It would be a difficult target to reach. The focus is on meeting target. It would add confidence ...," Rajan said.
Besides fiscal deficit and slowing growth, the document said the pressure points also include elevated inflation.
However, growth will be driven by factors like improved business confidence, better industrial output numbers, corporate profitability and moderating inflation.
The document said that achieving Budget targets in case of corporate tax, customs and central excise would be "somewhat difficult given the trend so far".
Rajan said low corporate profitability is impacting revenue realisation. "We hope it will start picking up once again and that should add buoyancy (to tax revenue)" he said.
The government, he said, will have to find ways to boost growth to improve corporate profitability and tax collection.
Rajan said that corporate performance will also improve with RBI reducing interest rates, which could be seen as one of the factors affecting growth.
Expressing concern over high current account deficit (CAD), the document said the government should endeavour to reduce it by improving the exports and trade balance.
It said that the CAD and trade deficit would be lower than the last fiscal. In 2011-12 fiscal, CAD was 4.2 per cent.
"We are worried about CAD. We want to take steps to monitor it," Rajan said, adding that gold imports are declining and there is a need for coming out with financial instruments which will attract investors so that they do not put money in gold, which is an unproductive asset.
Food inflation was more of a structural problem and its response to monetary policy changes is relatively weak, the Mid-Year Review said, adding that the momentum of food inflation is pointing towards moderation.
It said the recent decision of the government to open multi-brand retail to foreign investment would help consumers and farmers by improving the logistical facility.
The document said agriculture is expected to improve because of better prospects with rabi crops and dominance of irrigated wheat and rice crops.
Also, it added that services sector is expected to do better, driven by the performance of real sectors.
It said the fiscal deficit roadmap announced by Finance Minister has considerably improved business expectations and perception of the domestic and global investors.
As per the roadmap unveiled by the Finance Minister, the fiscal deficit has to be brought down to 3 per cent of the GDP by 2016-17.
Following are the highlights of the Mid-Year Economic Analysis 2012-13 tabled in Parliament today:
* Economy expected to grow at 5.7-5-9 pc in 2012-13.
* GDP growth in H2 seen at 6 pc against 5.4 in first half.
* Slowdown seems to have bottomed out.
* Global economic climate continues to be fragile.
* Monetary and fiscal policies should be supportive to boost investor confidence.
* Recent fiscal consolidation plan has improved investors' perception of economy.
* Fiscal deficit for this fiscal likely to be 5.3 pc of GDP.
* Inflation expected to moderate in Q4; March-end inflation seen at 6.8-7 pc.
* Moderation in inflation will facilitate softening of monetary policy stance by RBI.
* Agriculture to better on good prospects of Rabi crop.
* Services sector expected to post better growth.
* Both, Current Account Deficit and Trade Deficit likely to be lower than previous fiscal.
* Tight monetary policy & higher borrowing cost dented investment flow.
* Downside risks associated with global and domestic factors may impact direct tax collection.
India lowers economic growth forecast, says on track for fiscal deficit target
(Reuters) India lowered its official economic growth forecast to between 5.7 and 5.9 percent for this fiscal year, the finance ministry's mid-year economic review said on Monday, but said it was on track to meet a fiscal deficit target of 5.3 percent.
The budgeted forecast for GDP growth in the 2012/13 fiscal year was 7.6 percent, but growth was just 5.4 percent in the first half of the year. Finance Minister P. Chidambaram recently projected growth of between 5.5 and 6 percent for the year.
The government has struggled to contain the deficit, which has swelled because of costly oil subsidies and sluggish tax revenues, prompting global ratings agencies to warn of a possible credit downgrade.
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