Stressing the need for supportive fiscal and monetary policies to sustain investor confidence, the Government on Monday lowered the growth projection for 2012-13 to 5.7-5.9 per cent from its earlier estimated projection of 7.6 per cent.
According to the mid-year economic analysis tabled in Parliament, to achieve 5.7-5.9 per cent growth, both fiscal and monetary policy would have to be supportive. The government would also have to address concerns relating to structural supply side bottlenecks. “Given ...an emerging scenario, it should be possible for the economy to improve the overall growth rate of GDP to around 5.7 per cent to 5.9 per cent for the year 2012-13,” it said.
It said the economy would have to record a growth rate of 6 per cent in second half of the present financial year to reach the desired growth rate. Talking about inflation, the analysis said further moderation in price rise is likely to happen by the fourth quarter of the fiscal. “Inflation at the end of March 2013 is expected to moderate to 6.8-7 per cent level,” the report said.
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On the issue of rising fiscal deficit, the report said the government would endeavour to restrict it to 5.3 per cent of GDP as against 5.1 per cent envisaged in the budget. “There are reasons to believe that the slowdown has bottomed out and the economy is headed towards higher growth in the second half of the fiscal. Agriculture is expected to improve, because of better prospects, with rabi crops benefiting from greater moisture content in the soil and dominance of irrigated wheat and rice crops,” it stated.
The mid-year review further said that most services, particularly trade, transport, communication and financial services, being largely driven by the performance of real sectors, would also see better growth. Referring to the trade deficit, the document said it is expected that the gap in the current year would not be significantly higher than what it was last year.
“Consequently, it is reasonable to expect that the current account deficit as a ratio of GDP would be lower than what it was in 2011-12. Uncertainty, on account of disinvestment receipts and likely higher subsidy requirement, does make it a challenging task to adhere to the overall fiscal deficit target during 2012-13,” it said.
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With the present trend and prevailing scenario in the capital market, it said that while efforts are on for expeditious divestment, achieving the target of Rs. 30,000 crore during the remaining period of 2012-13 would be a challenge.
Referring to subsidies, the report said that the increasing subsidy bill of the three major subsidies — food, fertiliser and petroleum — had led to rising non-Plan expenditure. The Centre's outgo on major subsidies was up 49 per cent, to about Rs. 1.42 lakh crore in the first half of the fiscal against Rs. 95,190 crore in the same period last year. It further said that Budget targets, in the case of corporate tax, customs and central excise would be somewhat difficult given the trend so far. It said on the tax revenue side, the trend growth in the mid-year was lower than estimated.