Economy will grow 5%, revenue target to be met, says FM

After manufacturing activity picked up pace and official data showed marked recovery in India’s balance of payments (BoP) situation, Finance Minister P Chidambaram on Monday exuded confidence the economy will post 5 per cent growth this year and contrary to expectations, the government will be able to meet its revenue collection and fiscal deficit targets.

He, however, said that high inflation was a cause of concern which was mainly due to higher food prices, and to curb that, the state governments ought to take measures to improve supply mechanism, check hoarding and trade barriers.

Apart from a recovery in the overall economic growth in the second quarter and buoyancy in tax collections in the month of October, the finance minister’s confidence also stemmed from two important data points released on Monday – the Current Account Deficit, which was at a meagre $5 billion in July-September period and a rise in manufacturing PMI to 51.3 in November or above the watershed level of 50 that divides growth from contraction.

The data released by the Reserve Bank of India showed the current account gap has narrowed markedly to $5.2 billion in July-September quarter or one-fourth of $21.8 billion in the previous (April-June) quarter.

“Clearly BoP (Balance of Payments) position has improved significantly. The Current account position has improved significantly quarter-on-quarter and half year-on-half year. Trade deficit has also narrowed," the finance minister said interacting with reporters.

Analysts said that even if the CAD reached $10 billion in the next two consecutive quarters, the government will still be able to curb it at $47 billion at the end of fiscal 2013-14 which is below the estimated $56 billion and half of last year’s over $88 billion.
“The CAD is no more a problem for this fiscal,” an analyst said. The only killjoy in pack remained the core sector data for October which showed the eight key infrastructure sectors contracted by 0.6 per cent vis-à-vis a growth of 8 per cent in the previous month.

But Chidambaram said, if services sector showed brisk growth in October-December period and January-March period, it would help in  economic recovery.

“Agriculture is doing well, industry has picked up smartly and if services industry goes back to the growth rates of 2012-13, it will help in recovery and we may even have a quicker recovery...we are looking forward to better performance in Q3 and Q4," he said.

Service tax collection showed a rise 0f 26 per cent in the month of October alone. The decline in excise duty collection too narrowed in October from the previous month.