PM panel lowers FY14 growth projection to 5.3%

Makes case for restructuring subsidies

The Prime Minister’s Economic Advisory Council (PMEAC) on Friday lowered India’s economic growth forecast to 5.3 per cent from the Budget estimate of an average 6.4 per cent and also warned of a possible slippage in government finances if expenditures and subsidies were not checked.

The projections by PMEAC were immediately dismissed by economists and experts who saw no signs of recovery in the economy going forward in the wake of weak macro-economic indicators and subdued investment climate. 

PMEAC Chairman C Rangarajan, however based his estimates on the hope that industry and services will perform better in the second half of the fiscal. Releasing the Economic Outlook for 2013-14, Rangarajan said that he expected the industry to grow at 2.7 per cent in 2013-14 and services at 6.6 per cent, besides a robust growth in farmer sector at 4.8 per cent on the back of good monsoon this year.

India’s industrial production contracted 0.2 per cent in the first four months (April-July) of fiscal 2014 and analysts said that a lot of ground will need to be covered to reach an ambitious 2.7 per cent at the end of the fiscal, which appears impossible at present. The overall economic growth projection too comes on the back of a fall in gross domestic product (GDP) growth to a four-year low of 4.4 per cent in the first quarter of 2013-14.

This implies that the economy has to grow over 5.5 per cent in each of the three quarters in order to reach the overall projected 5.3 per cent growth for FY14.

The Council therefore warned that the discretionary expenditure budgeted may need to be compressed and subsidies restructured in the remaining months of the financial year in a “growth friendly manner” to limit fiscal slippage. The Centre’s fiscal deficit is estimated at 4.8 per cent of GDP in 2013-14 as against an estimated 4.9 per cent in 2012-13.

But the fiscal deficit in the first four months (April-July) has already reached 62.8 per cent of the full year budgetary estimates and expenditure on major subsidies 51.3 per cent.
 Rangarajan said the March-end WPI inflation will be at 5.5 per cent as rupee depreciation could harden commodity prices. The retail inflation in August stood at 9.52 per cent, while the WPI numbers in July was at 5.79 per cent.

Rangarajan also said the current account deficit could be lower than the projected $70 billion if current trends in exports and imports continued.