PMEAC cuts GDP growth rate to 6.7%

Investment rate lags at 34%; national savings have fallen to around 32%

 The Prime Minister’s Economic Advisory Council (PMEAC) on Friday pared India’s economic growth forecast for this fiscal to 6.7 per cent, revised inflation projections upward apprehending a dip in farm output owing to a weak monsoon and  recommended rise in diesel prices to contain the bloating subsidy bill.

Presenting the Economic Outlook report for 2012-13, PMEAC Chief C Rangarajan said that there was an urgent need to accelerate financial sector reforms, including foreign direct investment (FDI) in retail sector to give momentum to the slowing economy.

The gross domestic product forecast for fiscal 2012-13 was revised from an earlier projection of 7.5-8 per cent, while inflation was estimated to go up to 7 per cent.
Indian economy grew 6.5 per cent in 2011-12, its lowest in the past nine years due to high inflation, high interest rates and slowing industrial performance back home coupled with weak economic recovery in the western world.

Deficient monsoon in many parts of the country has added to the economic woes.
The report, which was presented to Prime Minister Manmohan Singh in the morning, lowered growth forecast in the agriculture sector to 0.5 per cent in the wake of drought in some regions affecting crops.

Although the report projected a 5.3 per cent growth in the industrial sector on the back of an expected good show by the manufacturing sector, it rued the falling rate of savings and investments in the country over the years and a consequent dip in the gross domestic capital formation.

While savings have fallen to a little over 32 per cent in 2011-12 from close to 37 per cent in 2007-08, investment rates have gone down by four percentage points in the past financial year from close to 38 per cent in 2007-08.

The capital formation took a hit of more than 3 per cent in the last fiscal and stood at 29.5 per cent. The Council also asked the government to cut down expenditure, as tax collections were expected to be lower and revenues from divestment still not on board.
“The government needs to execute divestment decisions much before the final quarter of 2013 fiscal year,” it said.

These apart, it suggested increase in the diesel price in one or more steps, and a cap on the subsidised domestic LPG cylinders to four in number to contain government’s wasteful subsidies. Alongside making a case for FDI in multi-brand retail, it also suggested a rise in infrastructure spends for sustained high growth rate of the economy.

“For channelising the transfer of capital and technology, FDI in multi-brand retail up to 49 per cent may be allowed to attract investment in this sector....,” Rangarajan said.
He also suggested allowing foreign airlines to pick up 49 per cent FDI in domestic airlines. In order to encourage investment in infrastructure sector, it suggested recast of Cabinet Committee on Infrastructure as the Cabinet Committee for Sustainable Development of Infrastructure and make special efforts to clear high-impact infrastructure projects costing over Rs 5,000 crore.