Even as most economic indicators are hinting at a slowdown in growth, the finance ministry is waiting for the GDP data for the first quarter of the current fiscal before it officially revises growth projection for 2011-12 downwards. Confirming this to FE, a senior ministry official, who requested anonymity, said the government also felt that meeting the target for indirect tax collection this fiscal had become a challenge with the recent cuts in petroleum taxes.
The growth figures of the first quarter (quick estimate) are expected to be released in August. India registered 9.3% growth rate in the first quarter of 2010-11.
A series of rate hikes by RBI since March last year to tame the stubbornly high inflation seems to have taken a toll on the economic activity. The industrial production, a key indicator of economic activity, grew at a weaker-than-expected 5.6% in May compared to 8.5% in the same period a year ago, slowest pace in last nine months. The manufacturing sector, which accounts for over 75% of industrial output, slowed to 5.6% in May compared to 8.9% in the same month a year ago.
The core sector data of eight key infrastructure industries also signalled a slump in growth as it slowed to 5.3% in May compared to 7.4% in the same year-ago period, highlighting the sluggishness in the industrial sector where input costs have gone up significantly.
In the Budget for 2011-12 presented in February, the government had estimated an average annual inflation of 5% during the year and a real GDP growth of 9%.
Within months of making these estimates in the Budget, high crude oil prices and commodity prices disrupted the fiscal calculations of the government. High sustained inflation is refusing to ease even after a slew of rate hikes by RBI.
RBI revised its growth projection to 8% for the current fiscal while global credit rating agency Fitch lowered its growth forecast for India in 2011 to 7.7% from 8.3% previously.
?The Budget projection are set to go wrong looking at the current economic scenario. A 7.7-8% growth looks realistic,? said DK Joshi, principal economist, Crisil.
India?s GDP grew by 8.5% for 2010-11 as a whole, but the January to March quarter saw a staggering industrial slowdown bringing it down to 7.8%, the slowest in five quarters.
Even policy makers are revising their projections. ?India?s growth rate in 2011-12 will be in the range of 8 to 8.5%,? C Rangarajan, chairman of Prime Minister?s Economic Advisory Council, recently said.
Besides, the slew of tax cuts on petroleum products along with a moderate growth in tax collections from other avenues could upset the government?s plan to prune the fiscal deficit to 4.6% of gross domestic product (GDP) this year from 5.1% last year. Joshi added, ?Meeting the fiscal deficit target will be difficult as there is a likely shortfall in revenue collection and growth is also taking a hit. We expect fiscal deficit to be around 5% for this year?.