Economy to post 10-yr low growth

Fiscal deficit to be capped at 5.3%

India’s economic growth at 5.7 per cent in the current fiscal is expected to be far short of the Budgeted 7.6 per cent and at a pace slowest in a decade, the mid-year economic review brought out by the government said on Monday.

It, however, projected inflation to moderated to 7 per cent from the current 7.7 per cent, which may give the Reserve Bank of India some elbow room to cut interest rates said to be chocking investment and economic expansion.

The Mid-Year Economic Analysis, presented in Parliament also emphasised on the need to be watchful on the current account deficit (CAD) which stood at an alarming 4.2 per cent last fiscal year.

It, however, expected the fiscal deficit to be contained at 5.3 per cent of GDP despite rising subsidy burden, although chief economic advisor Raghuram Rajan conceded that the target would be difficult to achieve.

"The 5.3 per cent is a tough target for fiscal deficit. It would be a difficult to reach the target. But the focus is on meeting it as it would add investor confidence,” he said.
Indian economy expanded 5.4 per cent in the first half (April-September) of the current fiscal.

The slowdown hit the major sectors of the economy including agriculture, industry and services. High inflation, however, persisted due to high prices of crude oil in the global market, domestic supply constraints and hike in minimum support prices of some of essential commodities.

Along with slow growth and high inflation, India’s trade deficit, current account and fiscal deficits kept expanding in the past year and got aggravated due to inadequate capital flows, lowering foreign exchange reserves and rising external debt.

The government, however, took some measures to check its overshooting expenditures on subsidies by raising diesel prices in the month of September and capping subsidised LPG cylinders. On trade front, there were concerns as India’s exports surpassed its imports as a result of  slowdown in the western world.

The imports suffered because of increasing demand for crude and gold. The net result was a trade deficit to the tune of $110 billion in the first six months of current fiscal year.

Despite all that, the mid year review has projected the economic growth rate to be in the range of 5.7 per cent to 5.9 per cent. This implies that the growth rate in the second half of the year would be close to 6 per cent as against 5.4 per cent in first half.

The government pins its hopes on a better Ravi crop this year and also on an improvement in manufacturing sector, but analysts are of the view that achieving six per cent GDP growth in the second half of the year will be quite difficult given the bleak global and slowing domestic economic parameters.