Industry needs policy support for sustained growth
In fact, the number of downward risks associated with Indiaís economic growth is growing. Manufacturing growth has barely reached 1% in the first eight months of the current fiscal, contributed largely by demand contraction in the capital goods sector. The Purchasing Managersí Index, which indicates market sentiment, is subdued for January 2013.
Gross fixed capital formation at current prices, a proxy for fresh investment, has been exhibiting a regular declining trend ó from 32.3% of GDP in 2008-09 to 30.6% in 2011-12.
Around 50% of mega central projects are suffering from cost overruns, with the major ones belonging to the power, roads and highways sectors, where the PPP route was preferred to encourage private investment. Environmental clearance seems to be taking a toll on projects, with various social issues complicating matters.
Lower growth had an adverse impact on revenue collection, particularly excise and corporate taxes, and this also explains the low growth rate of GDP at market prices. As per data from the Reserve Bank of India (RBI), the total cost of sanctioned projects in Q2 fy12-13, at R521 billion, is nearly 26% lower than the figure for the corresponding period last year and more than 54% lower
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