In a grim alert to the nation at large on the economic hardships that may lie ahead during the current fiscal and beyond, the government on Friday scaled down its GDP (gross domestic product) growth forecast for 2011-12 from 9 per cent to about 7.25-7.75 per cent in view of the gloomy global environment and specific negative factors at home.

Mid-year analysis

Tabled in Parliament by Finance Minister Pranab Mukherjee, the Finance Ministry's ‘Mid-Year Analysis 2011-12' said: “The analysis of several data series and simple macro-econometric modelling lead us to forecast GDP growth of 7.5 per cent (plus/minus 0.25 per cent) during 2011-12.”

The economic report card asserted that the sharply deteriorating global economic environment “has had a dampening effect on India” and “compounded with some domestic factors, the global situation has led to a clear slowdown in the growth rate of the Indian economy during the first half of 2011-12” to 7.3 per cent from 8.6 per cent year-on-year.

The government, however, expressed cautious optimism on a likely turnaround next fiscal but also pointed out that much would depend on the global economic environment, especially with regard to the aftermath of the sovereign debt crisis in Europe and the slowdown in the U.S.

“We expect some revival next year but the outlook remains mixed. If Europe slides into proper recession, with all the attendant financial contagion that will no doubt affect other nations, the entire world economy will slowdown and we could also be impacted,” the analysis said. Alongside, however, it maintained “… given that India's fundamentals are strong, if Europe and the U.S. remain stable, it should be possible for us to get back close to our long-run target of 9 per cent.”

On the burning issue of high prices, the Finance Ministry's analysis noted that the overall inflation at 9.73 per cent in October was likely to moderate to 7 per cent by the end of March next year. With demand side pressure moderating following withdrawal of fiscal stimulus and tightening of credit, the overall WPI (wholesale price index) inflation is likely to decline December onwards. “...the current fiscal may end with headline inflation of around 7 per cent,” it said while pointing out that “maintaining the growth momentum in the economy with price stability is one of the biggest policy challenges that India is facing in recent times.”

As for adhering to the budgeted fiscal deficit target of 4.6 per cent of the GDP in 2011-12, the government conceded that it would not be an easy task. “...adhering to the fiscal deficit target of 4.6 per cent of GDP is a major challenge,” the mid-year analysis said, especially in view of the fact that the government will find it difficult to raise Rs.40,000 crore from disinvestment and Rs.13,000 crore telecom spectrum auction.

The analysis noted that even as the government is determined to “keep overshooting of the fiscal deficit target as minimal as possible”, the uncertainty on disinvestment receipts — when markets are in a tailspin — and a likely higher subsidy requirement owing to rising prices of oil, fertilizer and other commodities “do make it a challenging task to adhere to the overall fiscal deficit target.” Raising concerns over rising expenditure on account of major subsidies, including oil, food and fertiliser besides higher interest payment, it said: “Higher growth in expenditure explains structural problem of government finances which needs to be addressed through policy initiative.”

Interacting with the media outside North Block, the Finance Minister maintained that the major challenges before the country were issues such as reverting to high growth, managing inflation and insulating India from adverse global economic situation.

Keywords: GDP growth

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