The government today lowered its economic growth forecast for 2015-16 to 7-7.5 per cent from 8.1-8.5 per cent, but said budget deficit target will be met as higher tax revenues offset a shortfall in PSU stake sale.
In its Mid-Year Economic Analysis presented in Parliament, the finance ministry said it will be able to stick to fiscal deficit target of 3.9 per cent for the current year, but the target of bringing it down to 3.5 per cent in the next will face pressure from higher outgo on central staff wages due to implementation of the 7th Pay Commission and Defence pensions.
“Given the challenges…, we estimate that real GDP for the year as a whole will lie in the 7-7.5 per cent range,” it said, adding that retail inflation is likely to be within RBI’s target of about 6 per cent.
Interacting with reporters, Chief Economic Advisor Arvind Subramanian, the author of the analysis, said: “The economy is recovering, but it’s hard to be very definitive about the strength and breadth of the recovery for two reasons, the economy is sending a mixed signal and second, there is some uncertainty on how to interpret GDP data that have come.”
As per the analysis, “the data uncertainty is in fact reflected in the mixed, sometimes puzzling signals emanating from the economy”.
Minister of State for Finance Jayant Sinha, however, added: “(The analysis) indicates that fiscal and economic performance the government has been able to demonstrate is excellent. Public investment and private consumption is driving economic growth… We in India are doing very well (though) there are some areas of economy where we can do much better.”
The government, in its Economic Survey in February, had projected a growth rate of 8.1-8.5 per cent for 2015-16, but has now lowered it to 7-7.5 per cent, mainly on account of deficit rainfall and slowdown in exports because of global factors.
Terming the tax collections in 2015-16 as “buoyant”, the analysis said, “The performance in buoyancy is likely (reflected in) improved tax administration, especially in relation to indirect taxes.”
It further said: “Indirect taxes have fared better than direct taxes, probably because corporate profits have not been buoyant, reflecting a slowing nominal GDP.”
For 2016-17, the analysis said as long as oil prices do not decline further and remain around USD 50 per barrel, the additional boost to consumption that the economy received this year – of about 1-1.5 percentage point – is likely to recede.
“Against this, if the monsoon behaves better next year, there could be some additional impetus to rural consumption. Since corporate balancesheets are only expected to recover slowly, private investment will not be significantly greater than in FY2016,” it said.
The Asia’s third-largest economy had grown 7.2 per cent in first half of the current fiscal and the Reserve Bank of India (RBI) had put the full-year growth at 7.4 per cent.
As for the external sector, the analysis said “the external position appears robust. The current account deficit has declined and is at comfortable levels (about 1.2 per cent of GDP); foreign exchange reserves have risen to USD 352.1 billion as on December 4, 2015 which seem ample…”
It added that India seems “well-positioned to absorb any volatility from possible US Federal Reserve actions to normalise monetary policy”.
The US Federal Reserve, meanwhile, has raised interest rates by a quarter percentage, the first in seven years when America tumbled into a deep financial crisis with the collapse of the Wall Street.