Augmented reality

With the latest Index of Industrial Production numbers in hand, it would take more than a few pinches of salt to digest the Central Statistical Organisation’s forecast of 5 per cent GDP growth in 2012-13. While the Finance Ministry and the Planning Commission are understandably anxious to show results under P Chidambaram’s six-month watch, the hasty revision of the CSO forecast to 5.4 per cent suggests a problem. The country’s investment grade credit rating is in the twilight zone and deeper spending cuts will further dent prospects of near-term growth. Indeed, the fiscal deficit could reach 5.3 per cent of GDP in end-March, which makes the government’s growth projection of 5.4 per cent look as dismal as the CSO’s ballpark of 5 per cent. The only positive is the government coming within sight of its Rs 30,000 crore disinvestment target for the current fiscal.

Boosting exports and curbing imports simultaneously come with intrinsic growth problems – where curbing the oil import bill is implicit – which the government is unable to address. Exports did turn a tad positive in the first eight months of the current fiscal. But imports rose 6.1 per cent, increasing the trade deficit to US$ 20 billion. This may not inspire RBI to make further interest rate cuts. The tidings on the consumer price inflation front are not good either, with energy costs pushing food and edible oil prices into double-digit inflation territory. Wholesale price inflation declined to 6.62 per cent in January from 7.18 per cent in December, though this was due to marginal decline in energy and core inflation. The first is hardly surprising, and could be a blip on the radar, as a revision of coal prices has been pending for over a year. After this, and when the next diesel and petrol hikes take effect, overall inflation this fiscal could close well above government estimates.

The food subsidy bill for fiscal was Rs 1 lakh crore. An additional Rs 20,000 crore subsidy allocation under the Food Security Bill will dilute the gains from any spending cuts and exacerbate fiscal deficit. With less than two months to go for the current fiscal to close, the government has few resources to contain fiscal deficit. For this, the larger malaise of import dependence and inefficiencies in fuel production, distribution, and power capacity under-utilisation need to be addressed. While attempting to restart the investment and consumption engines, the government must extend its credibility to tackle weak fundamentals, instead of resorting to CSO bashing.