Growth in Q3 has slowed to sub-5%

High on hope: 'While the current environment is difficult,the future holds promise'

Written by Surabhi | New Delhi | Published:February 28, 2013 12:46 am

The Indian economy is likely to have slowed to just below 5 per cent growth in the third quarter of the fiscal,even though the Economic Survey expressed hope of a revival in growth to 6.1 and 6.7 per cent in 2013-14.

“The picture is not very different from the advance estimates. Industrial production figures for December is the only new data set used from the third quarter GDP estimate that was not available for the advance estimates,” a senior official said.

The Central Statistics Office (CSO) is scheduled to release official data on gross domestic product for the October to December quarter on Thursday. The economy registered 5.4 per cent growth in the first half of the fiscal and the CSO in its advance estimates has pegged growth at 5 per cent for 2012-13.

“Simple mathematics shows that it is likely to be less than 5 per cent in the third quarter,” the official said. But the Economic Survey 2012-13,tabled by finance minister P Chidambaram in Parliament on Wednesday painted a much rosier picture of the economy and said the domestic downturn is over even as external risks have diminished.

Further,inflation is likely to soften to 6.2–6.5 per cent by March 2013,giving the Reserve Bank of India much needed space for an accommodative monetary policy.

“While the current environment is difficult,the future holds promise,” the Survey said,cautioning against downside risks including a high oil import bill and low risk tolerance by global investors. For 2012-13,the Survey had projected a growth rate of 7.6 per cent and it held the CSO projection of 5 per cent growth in the current fiscal.

“These are difficult times but India has navigated such times before and with good policies it will come through stronger,” said chief economic adviser Raghuram G Rajan who is also the lead author of the Survey,at a press conference.

The Survey also underlined the need for India not to take the external environment as a “given”. It has suggested demand compression and augmenting agricultural production as a palliative to lower inflation. “This will give RBI the flexibility to reduce interest rates.”

Easing “regulatory and bureaucratic impediments” will make the economy perform better in 2013-14. “We need to turnaround investments,government savings and household savings to revive growth. These are the three pillars on which any kind of revival will stand,” Rajan said.

Gross domestic savings as a percentage of GDP fell to 30.8 per cent in 2011-12 from 34 per cent in the previous fiscal. Household savings,which contribute three-fourths of the total domestic savings was 22.2 per cent of the GDP in 2011-12 against 23.5 per cent in the prior year. Further the twin challenges of fiscal deficit and current account deficit must be addressed immediately. Expressing concerns over the current account deficit,Rajan called for reducing it to 2–2.5 per cent of the gross domestic product.

The Survey also indicated that the Centre is likely to meet its fiscal deficit target of 5.3 per cent in the current fiscal but warned that uncapped subsidies on diesel and domestic cooking gas pose a threat to fiscal credibility. Rather than curtailing expenditure,the government must widen the tax base to curb the fiscal deficit,the Survey said.

HIGHLIGHTS

‘Market play needed in agriculture sector’

WHILE ADVOCATING stable and consistent policies on agricultural marketing,the Economic Survey highlighted the need for “efficient supply chain” to provide “linkage between retail demand and the farmer” and suggested that the private sector should be allowed to do this role.

Rural spending trumps that of urban areas

EVEN AS disparities between rural and urban areas continue to exist,the monthly per capita expenditure (MPCE) in rural areas increased at a significantly higher rate compared to urban areas in 2011-12 over 2009-10,the Survey said,indicating that there could be a gradual bridging of the urban-rural divide.

Five dedicated freight corridors on the anvil

IN ORDER to enhance the Railways’ transportation capacity and free up traffic on existing train routes,the government is planning to build five new dedicated freight corridors. The proposed corridors are: Kolkata- Mumbai,Delhi-Chennai,Kharagpur-Vijayawada and Goa-Chennai,the Economic Survey said.

Trivia

1. The chief economic adviser to the finance ministry has traditionally been the lead author of the Economic Survey and the document often includes some own views.The contribution of the current adviser Raghuram Rajan is a chapter on job creation and demographic dividend. In contrast predecessor Kaushik Basu had focussed on issues relating to corruption and had also introduced a new index called the ‘Comparative Rating Index for Sovereigns’ (CRIS).

2. In a new practice,the finance ministry has acknowledged all the officers,consultants and economists who worked on the Survey and profiled them on its website in a section called ‘People behind the Survey’.

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