PMEAC over-optimistic about FDI flows: CARE

Credit rating agency CARE has stated that a big push in consumption, investment or government spending is necessary for the country to achieve GDP growth of 7.5-8% in 2012-13.

The agency has also indicated, in a recent report entitled Economic Prospects: FY12 and FY13, the likelihood of time lags between such measures and the achievement of the projected growth rates, due to the slowdown in private sector investments and the possibility that RBI would only gradually lower interest rates during the year.

CARE adds that fiscal consolidation would also restrict the ability of the government to make large spends, and claims that increase in growth by around 1% appears to be 'fairly optimistic'.

These observations come in the wake of certain projections made by the Prime Minister's Economic Advisory Council (PMEAC) for the current fiscal and for FY13. The PMEAC's estimated rate of growth in 2011-12 at 7.1% is marginally higher than the 6.9% projection made by the Central Statistical Organisation, due to better growth in agriculture and construction.

The rating agency has hinted that PMEAC's assumption that manufacturing will rebound by 7.5% in FY13 hinges on industrial revival. However, it agrees that the Council's 9% growth projection in the services sector is feasible.

About foreign investments, CARE says the target for FDI at $50 billion appears to be on the higher side, as reforms on this front may not be coming about too soon to cause a sudden jump in inflows.