New Delhi, Dec. 17: The government today lowered its growth forecast for the fiscal to 5.7-5.9 per cent from the budget estimate of 7.6 per cent, but the revised outlook points to the economy shaking off its lethargy that had seen a decade-low growth of just 5.4 per cent in the first half of the fiscal.
In its half-yearly economic analysis, tabled in Parliament today, the government said it was banking on the softening of inflation in the January-March quarter that could see the easing of the monetary policy by the RBI and growth picking up. The Centre, too, should offer suitable fiscal incentives.
RBI’s own estimate of growth for the fiscal, made in its own October second-quarter policy review, was 5.8 per cent against 6.5 per cent projected earlier.
The apex bank meets tomorrow to review its monetary policy amid very low expectations of a rate cut. However, economists and bankers are expecting the central bank to trim the cash reserve ratio by 50 basis points.
“We expect 6 per cent GDP (gross domestic product) growth in the second half, which should give us 5.7-5.9 per cent overall growth,” Raghuram Rajan, chief economic adviser to the finance ministry, said here today.
Rajan said growth had bottomed out and that inflationary pressures were expected to ease in the second half, while industrial output is expected to improve. In fact, industry growth did spring a surprise in October when it rose to a 16-month high of 8.2 per cent.
“Corporate profitability also appears to be reversing its declining trend which suggest that availability of domestic funds for investment may see an increase in subsequent quarters,” the government said.
The mid-year analysis sees the growth impulse in the easing of monetary policy by the RBI. “A further moderation in inflation, together with benign global commodity prices, will also facilitate softening of the monetary policy stance of the RBI.” The finance ministry expects inflation to ease to about 6.8-7 per cent by the end of March; on the other hand, the RBI had raised its inflation forecast for the year to 7.5 per cent in October from 7 per cent.
The analysis said restricting the fiscal deficit to 5.3 per cent of the gross domestic product (GDP) would be difficult. Rajan, too, admitted that the target was difficult. “Although (even) the 5.3 per cent fiscal deficit target is a tough one, the finance minister has full ambition to reach this target.”
The government is banking on some positive trends to keep the deficit in check. The hope stems from expectations that telecom companies will bid “aggressively” for spectrum in the next round of auctions, and there will be an “increased pick-up” in the sale of state run firms’ equity.
“(The) divestment programme is picking up and that’s good news. We have had at least one success and the pace should pick up. We should make up under some other head to meet deficit target if revenues falter elsewhere,” said Rajan.
To achieve 5.7-5.9 per cent growth, the mid-year analysis said, “Both fiscal and monetary policy, however, would need to be supportive to sustain investor confidence. The government will also have to address the concerns relating to structural supply side bottlenecks”.
Agriculture is expected to improve because of better prospects, with rabi crops benefiting from greater moisture content in the soil and the dominance of irrigated wheat and rice crops.
Most services, particularly trade, transport, communication and financial services, will also see better growth, according to the half-yearly analysis.
The chief economic adviser feels that the next budget should lay out a plan to bridge deficit.
Confidence inducing steps and measures in capital markets are other issues that the budget should address, he said. “Mechanism for infrastructure financing needs to be strengthened and vibrancy of the equity markets needs to be improved.”
Expressing concern over the high current account deficit, the analysis said the government should endeavour to reduce it by improving exports.