PMEAC sees sharp rebound; pegs FY8217;14 growth at 6.4

The report encouraged the analysts like Goldman Sachs to observe the Reserve Bank of India could cut the benchmark interest rates by 0.5 per cent in its annual policy on May 3. The Rangarajan panel says the forecast of growth of GDP for FY14 is greatly dependent on the extent of success of policy and administrative measures in converting capital invested into current output and,hastening investments already made towards completion.

In a candid analysis of its growth projection for the past two years going awry,the PMEAC says the government erred on two counts.

First,the government did not grasp how quickly growth in the Indian economy rebounded post the global financial meltdown. This made it keep interest rates soft and extend the tax sops longer than needed. Second,the high growth created a strong investment momentum but which was wasted as policy hindrances choked approvals.

This stretched corporate profitability and balance sheets,and badly eroded business and investment sentiment. It was not as if the fact of delays was not known,but PMEAC underestimated the extent to which these delays would persist,the Review concludes.

The way out for the economy,it says is to remove the policy obstacles as high investment is persisting and capital flows from abroad have picked up pace to supplement domestic savings to finance it. Industry chambers Ficci and CII welcomed the report saying,The inflation numbers placed at 6 per cent in FY14 are also comforting and indicate a possible relaxation in the monetary stance by RBI which could help it in reducing interest rates. It accordingly suggests there should be no restrictions on inflow of capital into the economy. The current account deficit is estimated at 100 billion for FY14 ,of which 42 per cent would be financed by FDI and FII inflows.

In FY13 the combined financing was 43 per cent. The slightly smaller estimate despite a higher FDI inflow is because FII money could remain constrained. The other reforms he suggest are in agricultural marketing,improvement in net energy availability which includes gas price reform which will improve the conditions for exploration amp; production of hydrocarbons and facilitating the increase in domestic coal production. The PMEAC says import of gold and silver in FY13 is estimated at 56 billion,8 per cent less than last year.

ERROR ON TWO COUNTS

The PMEAC says the government has erred on two counts:

First,it did not grasp how quickly the economy rebounded post the financial meltdown

Second,the momentum growth created was wasted as policy hurdles choked approvals