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Core sector growth offers little comfort

New Delhi, Dec. 31: The output of eight core sector industries grew 2.5 per cent during April-November, showing green shoots of recovery.

However, the growth figures may offer little comfort to finance minister P. Chidambaram. Data released by the Controller General of Accounts showed that fiscal deficit during these eight months had touched 94 per cent of the annual target, implying that the government is running the risk of overshooting the target.

The Centre had vowed to keep fiscal deficit in check in the face of warnings by global rating agencies to downgrade India’s credit rating.

In infrastructure, according to data by the Central Statistical Organisation, the key industries, including coal, oil, steel, cement and electricity, grew 1.7 per cent in November after shrinking 0.6 per cent in October.

The tardy growth can be attributed to natural gas whose production shrank 13.1 per cent during April-November and 11.3 per cent in November. Gas output has been low in Reliance Industries’ KG-D6 fields, with the company and government locked in a conflict over extractable reserves.

Steel, cement and electricity were the drivers of growth. Steel output grew 3.9 per cent, cement 4.2 per cent and electricity 5.9 per cent in November.

“This augurs well for the economy — growth in sales of steel and cement point to more infrastructure building — which in turns kicks in greater growth with a time lag,” a plan panel adviser said.

Rating agency Crisil’s chief economist D.K. Joshi cautioned that monthly figures “have been highly erratic showing good growth in September with a poor October figures and then better November figure. Hence we don’t think it’s good enough to read a recovery as yet”.

However, mandarins in the North Block are more concerned with the deficit figures. Fiscal deficit, or the gap between the government’s earning and spending, stood at nearly 94 per cent during April-November, leaving it with little scope to launch any spending schemes in the run-up to the elections slated to be held by May.

Fiscal deficit touched Rs 5.09 lakh crore in November against the budgeted Rs 5.42 lakh crore for the fiscal.

According to finance ministry officials, revenue deficit — or the gap between revenue collection and spending — stood at 103.5 per cent of the budgeted target. It stood at Rs 3.93 lakh crore against Rs 3.79 lakh crore budgeted for 2013-14.

“Both deficits look worrying for the government, showing fiscal strain,” Joshi said.

Officials admit that subsidy payments may jeopardise their budget calculations. For instance, against a budgeted Rs 65,000 crore in oil subsidies, the government may end the year by having to pay Rs 1.47 lakh crore. Food subsidy pegged at Rs 90,000 crore may rise to nearly Rs 1.1 lakh crore, according to estimates.

One way out for the government will be to delay the payment of subsidies or convert them into bonds to be realised by oil companies.

However, the delay in subsidy payments impacts corporate results and invites protests and legal wrangling. Fertiliser firms are already up in arms against the delay in subsidy payments amounting to Rs 36,000 crore.

 
 
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