Seeking to sound a bit more realistic than it has in the past, the Prime Minister’s Economic Advisory Council on Friday sharply reduced its GDP growth forecast for FY14 from 6.4% predicted in April to 5.3%. This is in sync with the Reserve Bank of India’s latest estimate of 5.5%, the 5-5.5% outlined in a recent article by Raghuram Rajan before he became the central bank governor. However, the council’s estimate is still considerably higher than that of private forecasters like JPMorgan (4.1%), Standard Chartered (4.7%), CLSA (4.2%) and Nomura (4.2%). The reduced growth rate projected for this fiscal is still a shade higher than 5% achieved in 2012-13.
The council, slightly at variance with the finance ministry’s assertion that the red line of budgeted fiscal deficit won’t be breached, noted that the deficit in the first four months had amounted to 63% of the full-year target, which was now a challenge to meet. The council, headed by C Rangarajan, asked the government to compress “discretionary spending” and restructure subsidies “in a growth-friendly manner” to limit fiscal slippages.
Hoping that stability was returning to the foreign exchange market, Rangarajan said the rupee at the current level (it closed 63.48 against the dollar ion Friday) was “well-corrected” (finance minister P Chidambaram had said the Indian currency had overshot its value when it was ruling at 67-68 against the dollar). The council also predicted a drawdown of $9 billion from the country’s forex reserves owing to the huge portfolio outflows, not in conformity with Chidambaram’s claim that there would, like last year, be a small accretion to the reserves after fully funding the current account deficit.
Taking heart from the clearances being given to a number of big projects by the Cabinet Committee on Investment, the council said there was lead time before these resulted in economic activity or increased output and refrained from stating explicitly that these approvals would result in a pick-up in growth as early as in the second half of this fiscal. These projects, the council noted though, would set the ground for a strong revival in the next fiscal year.
Independent analysts, however, remained cautious, highlighting fall in private consumption growth to a decade’s low of 1.6% in the first quarter and the somewhat facile nature of the manufacturing rebound seen in the July Index of Industrial Production, driven as it was mostly by electrical equipment sector,