The Reserve Bank, known for its conservative estimates, recently scaled down the country’s gross domestic product (GDP) growth rate for financial year 2012-13 to 6.5 per cent from its earlier projection of 7.3 per cent. However, Planning Commission Deputy Chairman Montek Singh Ahluwalia today pegged the economic growth at 6 per cent on the back of severe impact of weak monsoon on farm growth and muted industrial expansion.
“If we factor in agriculture, which would not be strong ... (growth) would be closer to 6 per cent. I don’t think we have sufficiently strong industrial turnaround yet,” Ahluwalia said.
India’s economic growth slowed to a nine-year low of 6.5 per cent last financial year. If the economy grows by 6 per cent this year, it would be a 10-year low figure. Earlier, in 2002-03, the economy had grown at 4 per cent.
While the Budget assumed growth to be at 7.6 per this year, now no one talks of that growth figure. If growth falls to six per cent, it would have implications on tax receipts, fiscal deficit, etc. In fact, fiscal deficit at given absolute number would look higher if growth comes down.
Initial signs of growth for this financial year were not promising. While industrial growth stood at 2.4 per cent in May, after contracting in April, eight core sector industries, which have 38 percentage weight in overall industrial growth, expanded by just 3.6 per cent in June. In May, these industries grew by 3.8 per cent, which contributed to low industrial expansion that month.
Also, exports and imports contracted for the second month in a row in June. The fact that imports fell over 13 per cent in June tells the story of an industrial slowdown. Non-oil imports fell over 17 per cent, which further buttresses slowdown.
In case of the 12th Five-Year Plan (2012-13 to 2016-17), Ahluwalia said the annual average economic growth could be around 8.2 per cent, against the earlier estimate of 9 per cent envisaged in the Approach Paper to the policy document.
Monsoon has been 19 per cent below normal till today, which may lead to partial drought in the country.
On whether special schemes were needed to tide over the drought like situation, Ahluwalia said, “I don’t think you need an incentive. These are issues that state governments have to tackle. They are usually very keen to take corrective measures.” He further said rural employment guarantee scheme, the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), could deal with the problem of unemployment in rural areas.
“The growth rate in agriculture will be lower, and this means certain amount of income and employment stress in rural areas will have to be countered. In that perspective, the existence of the MNREGA scheme provides a kind of automatic stabliser. If people need work because of drought, they will get work through MNREGA,” Ahluwalia said.
Ahluwalia said there were possibilities that the monsoon situation would improve in the coming months. “They (Indian Meteorological Department) have actually said the overall monsoon position in the next two months would be better than the previous two months, but the overall rainfall would be deficient. There is nothing new in this. We have known that rainfall would be deficient in the first two months,” he said.
On the impact of drought on price situation, he said, “It is true that inflation has been a problem. It has come down from double digits, but virtually all government forecasts say that it will remain around 7 per cent for some time, and this is not good.”
The wholesale-price inflation in June was 7.25 per cent, while at the retail level, it was at 10.02 per cent.
Ahluwalia said diesel prices should be raised or else a situation similar to the one caused by the recent power grid failure would erupt.
“The real question is that if we don’t take these hard decisions (diesel price rise), there will be other consequences. You saw that with the grid collapse... If distribution companies are unable to pay for power, you are going to have some problems,” he said.
On the recent consumption survey by the National Sample Survey Organisation, Ahluwalia said poverty in the country had come down to 26 per cent in 2011-12. According to the Planning Commission’s estimates, poverty ratio was at 29.8 per cent in 2009-10, as per the Tendulakar Committee methodology.
