It's a period of stress, but there's ground for optimism: FM

Says economy on growth trajectory again, pegs GDP growth at 5% in FY14; DBS says uphill task

Pinning hopes on a recovery in the second half of 2013-14, Finance Minister P Chidambaram on Monday said the country’s economy, led by an uptick in manufacturing and exports, would grow five per cent this financial year.

“We are going through a period of stress, but there is clearly a ground for optimism. The performance of the economy in the second quarter is broadly on expected lines. We hope things will become better in the second half of the current financial year,” he said.

The economy grew 4.8 per cent in the July-September quarter of this financial year, against 5.2 per cent in the corresponding period of 2012-13. This was better than the first quarter’s 4.4 per cent growth rate but at a sub-five per cent level for a fourth straight quarter. Growth in agriculture and industry, on a year-on-year basis, improved during the quarter, but that in services declined.

Chidambaram said the second-quarter numbers indicated the economy might be recovering and returning to growth trajectory. If the services sector showed brisk growth in the third and fourth quarters, it would aid the overall recovery in the second half, he added. “We expect five per cent economic growth in 2013-14.”

Also on Monday, a report by Singapore-based brokerage firm DBS said the modest uptick in the second-quarter GDP readings indicated the worst might be over for the domestic economy, but achieving five per cent growth for the financial year might still be an uphill task.

Chidambaram said: “Our balance of payments position has improved significantly. The current account deficit (CAD) has narrowed. We are on course to contain CAD.”

The finance minister also exuded confidence that the government would contain its fiscal deficit for the year at 4.8 per cent of GDP, despite concerns, as it was on course as far as disinvestment and spectrum sale targets were concerned — and tax collections had started picking up.

“In tax collections, there was some momentum in the beginning of the second half. When revenue collections speed up, we will contain fiscal deficit. Once spectrum is sold, we will get more than the target. On disinvestment, we are on course. I have got the calendar on my table and don’t see any shortfall,” he said, adding fiscal deficit at the end of any month did not give a true picture as expenditure was front-loaded and revenue collections back-loaded.

At the end of October, 84.4 per cent of the Budget estimate for full-year fiscal deficit had been achieved. The disinvestment target for this year is Rs 40,000 crore, but the government has managed to raise only Rs 1,400 crore through stake sale so far. Proceeds from the sale of telecom spectrum are also pegged at over Rs 40,000 crore.

The finance minister also said FCNR flows into the country had exceeded the government’s expectations. The flows have touched $25.9 billion and, with an addition of $8.3 billion under Tier-I borrowing, the total flows stand at $34.3 billion.

Asked about inflation, Chidambaram said the principal responsibility of taming food inflation and all instruments for that lay with state governments. The state governments must take action against hoarding and profiteering and remove barriers to trade.

After a gap of six months, the rate of retail inflation had returned to double digits in October, rising to 10.09 per cent. The wholesale inflation rate in the month increased to an eight-month high of seven per cent. The wholesale food inflation rate had stood at 18.19 per  cent.