Recovery in sight; FIIs, oil prices key

 

The Economic Survey for 2012-13 has said in 2013-14, growth in India's gross domestic product (GDP) would recover to 6.1-6.7 per cent, against the estimated decade-low growth of five per cent this financial year. The estimate takes into account a normal monsoon, further moderation in inflation and a mild recovery in global growth.

As global conditions aren't expected to play a significant role in the revival, a team of finance ministry advisors, led by Chief Economic Advisor Raghuram Rajan, recommended fixing domestic economic issues, particularly the Centre's fiscal deficit.

At 0.6 percentage points, the estimated range of GDP growth was wide. For the two previous surveys, estimated growth had been off the mark by substantial margins. "Forecasting at potential turning points is difficult. Therefore, the range is relatively wide this time," the Survey said.

The pre-Budget document cautioned support to Indian growth from the global economy was unlikely to be significant. Rather, the global scenario had led to two downward risks -"volatile capital flows and oil prices, it said, adding India was exposed to shifts in the risk tolerance of international investors.

"Of course, one reason for rising oil prices would be improvements in the global economy, which would mean stronger exports," the Survey said. A rise in oil prices because of geopolitical risks would, however, mean increasing investor anxiety and slow global growth.

The Survey said India would have to focus on fixing the domestic economy in a manner that all the three sectors of the economy -" farm, industry and services -" contributed to growth. The primary task was to adhere to the five-year fiscal consolidation road map laid down by Finance Minister P Chidambaram last year, it said.

It added fiscal consolidation would provide the Reserve Bank of India a lever to cut policy rates, as demand compression and higher agriculture production would reduce inflation. This would, in turn, give a fillip to investment for the industry and services sectors, provided some of the regulatory, bureaucratic and financial impediments were done away with.

For 2012-13, GDP growth is estimated at 10-year low of five per cent. The Survey said compounded annual GDP growth through the decade ending 2012-13 would be 7.9 per cent. It attributed the slow economic growth this financial year to effects of the strong stimulus dose in 2008-09, a slowdown in corporate and infrastructure investment, a tight monetary policy and external shocks -"the crisis in the Euro zone and uncertainties on the fiscal policy in the US. A weak monsoon, at least in initial phase, was also blamed for the slow growth.