The Indian economy is headed for the decade's lowest growth of 5.7-5.9 per cent this fiscal, with a likelihood of its picking up going forward on the back of a confidence-inducing Budget and reforms initiatives.
In its Mid-Year Economic Analysis, which was tabled in Parliament on Monday, the government lowered the economic growth estimate for 2012-13 to 5.7-5.9 per cent, from 7.6 per cent projected in Economic Survey in March.
This would be the lowest growth since 2002-03, when the economy expanded by a mere 4 per cent. In the 2011-12 fiscal, the economy expanded at 9-year low of 6.5 per cent.
The challenges before the economy, the document said would be to meet revenue realisation, disinvestment target, and contain fiscal deficit at 5.3 per cent of GDP.
Briefing reporters, Chief Economic Advisor Raghuram Rajan said: "Slowdown has bottomed out. We anticipate that with the positive momentum that we see build up, we will see 6 per cent growth in second half which will take up the growth for full fiscal to 5.7-5.9 per cent". It grew by 5.4 per cent during April-September 2012-13.
He suggested a three pronged strategy -- confidence inducing Budget, speeding up clearance for projects, and further steps in capital market reform -- to boost investor confidence and propel growth momentum.
The document, which was released a day before the Reserve Bank's mid-quarter review, has pitched for supportive monetary and fiscal policies to improve investor confidence.
It said there "are reasons to believe" that the slowdown has bottomed out and economy is headed towards higher growth going ahead.
Referring to inflation, it said, further moderation in price rise is likely to commence from the fourth quarter of the fiscal.
"Inflation at the end of March 2013 is expected to moderate to 6.8-7 per cent level," it said.
As regards fiscal deficit, the document said, restricting it to 5.3 per cent of GDP is a challenging task given the uncertainty on disinvestments, higher subsidy outgo and subdued tax collection.
"5.3 per cent is a tough target. It would be a difficult target to reach. The focus is on meeting target. It would add confidence ...," Rajan said.
Besides fiscal deficit and slowing growth, the document said the pressure points also include elevated inflation.
However, growth will be driven by factors like improved business confidence, better industrial output numbers, corporate profitability and moderating inflation.
The document said that achieving Budget targets in case of corporate tax, customs and central excise would be "somewhat difficult given the trend so far".
Rajan said low corporate profitability is impacting revenue realisation. "We hope it will start picking up once again and that should add buoyancy (to tax revenue)" he said.
The government, he said, will have to find ways to boost growth to improve corporate profitability and tax collection.
Rajan said that corporate performance will also improve with RBI reducing interest rates, which could be seen as one of the factors affecting growth.
Expressing concern over high current account deficit (CAD), the document said the government should endeavour to reduce it by improving the exports and trade balance.
It said that the CAD and trade deficit would be lower than the last fiscal. In 2011-12 fiscal, CAD was 4.2 per cent.
"We are worried about CAD. We want to take steps to monitor it," Rajan said, adding that gold imports are declining and there is a need for coming out with financial instruments which will attract investors so that they do not put money in gold, which is an unproductive asset.
Source:- http://www.dnaindia.com/
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