India's official growth target cut, outlook on inflation better

Cautioning that challenges remain in the Indian economy despite progress, the finance ministry has sharply cut its growth forecast for this fiscal to 7-7.5 percent from 8.1-8.5, but said inflation remained under control.

In a mid-year review tabled in parliamnt on Friday, the finance minstry also said that the fiscal deficit target for the current fiscal will be met despite some setbacks on divestment but did not sound too optimistic on this front for the next fiscal year.

"Economy has made considerable progress but challenges remain. The government aims to meet fiscal deficit target of 3.9 percent (of GDP) without big expenditure cuts," said the report, authored mainly by Chief Economic Advisor Arvind Subramanian.

The earlier growth forecast was 8.1-8.5 percent, as estimated in the Economic Survey presented in February. Against this, the economy expanded by 7.4 percent in the second quarter of 2015-16 and 7 percent in the first quarter, according to official data.

On fiscal deficit, the report said a lower than expected expansion in the economy will by itself raise the target by around 0.2 percent of GDP, as this is indexed to the government's revenues and expenditure, even as a likely drop in divestment receipts will add to the burden.

The report said tax collections have been buoyant relative to the growth. "Indirect taxes have fared better than direct taxes."