FinMin stands by 9.5% growth forecast

Basu says India growth story intact in the long run.

The finance ministry doesn’t think the current situation which has led to prioritisation of inflation control over growth would impact Planning Commission’s growth projection of 9-9.5 per cent for the 12th plan period (2012-2017).

Chief Economic Advisor (CEA) Kaushik Basu told Business Standard the problems associated with inflation were all short-run. “It does not change the long-run story,” he said.

Basu said the preliminary growth figure of 9-9.5 per cent for the 12th Plan would not change in the approach paper.

RBI, in its monetary policy last week, had raised the benchmark repo rate by 50 basis points to curb inflation and lowered the growth expectation for 2011-12 to 8 per cent.

RBI has pegged Gross Domestic Product (GDP) growth rate for the current financial year at 8 per cent against the government’s projection of 9 per cent. The economy grew by 8.6 per cent in 2010-11.

The Planning Commission is currently reworking the projected numbers, in consultation with the finance ministry, for various fiscal parameters outlined in its preliminary estimate and shared at the full commission meeting on April 21, chaired by the prime minister.

The Plan body said in its presentation that realistically, even 9 per cent growth during the 12th Plan period would need strong policy action, adding the government could aim at 9-9.5 per cent.

With the growth figure likely to remain unchanged, the numbers being reworked include net tax revenue and the Centre’s gross budgetary support (GBS).

A senior Planning Commission official said net tax revenue target as percentage of GDP given in the preliminary picture would be revised downward. Initial projection targeted net tax revenue to go up from 7.7 per cent of the GDP in the 11th Plan to 8 per cent in the 12th Plan with 2011 Budget estimate figure of 7.2 per cent going up to 8.8 per cent of the GDP in 2016-17.

The Planning Commission official said the approach paper might target a net tax revenue of around 8.5 per cent of the GDP towards the end of the Plan period. Similarly, the Centre’s GBS is also likely to go down in the approach paper, said the official. It has been aimed currently to go up to 5.4 per cent of the GDP in the 12th Plan period from 4.7 per cent in the 11th Plan. The preliminary target suggested the figure to rise from 4.9 per cent of the GDP in 2011-12 Budget estimate to 6.2 per cent in 2016-17. Here also, the target for 2016-17 is set to go down in the approach paper, said the official.