In a comparatively sombre projection on the Indian economy, the Prime Minister’s Economic Advisory Council (PMEAC), on Tuesday, pegged the GDP (gross domestic product) growth rate for the current fiscal year at a realistic 6.4 per cent, up from the decade’s low of 5 per cent that is likely to be actually achieved in 2012-13.
Even as the 5 per cent GDP growth is way lower when compared to its August, 2012, review estimate of a 6.7 per cent expansion in 2012-13, the PMEAC has ventured to project that with the economic slowdown bottoming out, the economy could grow at a faster pace of 7.5-8 per cent in the short term in 2013-14, provided the necessary administrative measures are taken along with speedy execution of projects.
Releasing the ‘Review of the Economy 2012-13’ at a press conference here, PMEAC Chairman C. Rangarajan sought to explain why the council’s August projections — barring that on inflation — for the last fiscal year had gone wide off the mark even as he hoped that the overall economic scenario during the current fiscal would be better as the performance of sectors such as agriculture and manufacturing was likely to be improve.
“I believe we have reached the bottom, the economy will now continue to grow at a faster rate…The very high level of investment rate that we have even now gives us the hope that if we take action for speedy implementation of projects, we can achieve the higher rate of growth quickly even in the short term,” Dr. Rangarajan said.
Indicating that the GDP growth rate during 2012-13 could undergo an upward revision when the final figures are released, the PMEAC chief asserted that for a sustained upward growth momentum, the government would have to contain the worrisome current account deficit (CAD) by making financial instruments more attractive, correct the administrative prices to reduce the subsidy bill and accord speedy clearance to projects to ensure that the hitherto stalled investments yield positive results.
Incidentally, since September last, the government has been taking a number of reform measures.
These include virtual deregulation of diesel prices, capping of subsidised LPG cylinders for domestic use and partial decontrol of the sugar industry.
As for stalled projects, a Cabinet Committee on Investment (CCI) has been formed to look into the issues that are holding back implementation of big infrastructure projects and the roadblocks for a clutch of such projects were cleared recently.
With the government geared into reform mode, and provided it continues to take affirmative action, the PMEAC has projected CAD to come down to 4.7 per cent of the GDP in 2013-14 from 5.1 per cent in 2012-13 while inflation in food, fuel and manufacturing category at 8 per cent, 11 per cent and 4 per cent, respectively, during the current fiscal.
Dr. Rangarajan noted that CAD could be tackled by encouraging capital flows and making other savings avenues more attractive to lure people away from investing in gold. Gold import in value terms during this fiscal is expected to be $45 billion while the oil import bill is estimated to rise to $125 billion from $110 billion in 2012-13.
As for capital inflows, while net FDI (foreign direct investment) inflow in 2013-14 is expected to be $24 billion, the PMEAC has pegged FII (foreign institutional investor) inflow at $18 billion during the fiscal year. Dr. Rangarajan noted that net capital flows would be adequate to finance CAD.
As for the performance of specific sectors during the current fiscal, the PMEAC has estimated the agriculture sector to grow at 3.5 per cent on account of a normal monsoon, as compared to a 1.8 per cent expansion expected for 2012-13.
Growth rates for the industry and services sector have been pegged at 4.9 per cent and 7.7 per cent, respectively as against the previous fiscal’s 3.1 per cent and 6.6 per cent.