PMEAC lowers GDP forecast to 5.3%

Suggests expenditure curbs, easier FDI norms, stable tax regime

Discretionary expenditure budgeted may need to be compressed, and subsidies restructured, in the remaining months of the financial year in a growth friendly manner to limit fiscal slippages - C Rangarajan

New Delhi (PTI): Listing fiscal and current account deficits as challenges facing the economy, Prime Minister's key advisor on Friday lowered the growth forecast for the current fiscal to 5.3 per cent from 6.4 per cent projected earlier. The panel also suggested oil subsidy reduction to keep public finances under check.

Releasing the Economic Outlook for 2013-14, PM's Economic Advisory Council (PMEAC) Chairman C Rangarajan listed host of measures like easier FDI norms, increasing coal output and stable tax regime to boost growth in medium to long term.

"The council is looking at a rate of economic growth of 5.3 per cent in 2013-14, lower than that indicated (6.4 per cent) in its April 2013 review," it said, adding that currency related disruptions has impacted the momentum of recovery. RBI too had earlier lowered its growth projection for this fiscal to 5.5 per cent from 5.7 per cent. The GDP grew by 5 per cent in 2012-13.

Terming high Current Account Deficit (CAD) as the "main concern at present", Rangarajan said it was expected to come down to $70 billion or 3.8 per cent of GDP in 2013-14, from $88.2 billion or 4.8 per cent a year ago. However, he added that in view of the likely decline in net capital inflows, India will have to draw down its reserves by around $9 billion to bridge the CAD.

On the government's resolve to lower fiscal deficit to 4.8 per cent of GDP in 2013-14, Rangarajan said "containing (it) within the budgeted estimate could be a challenge" and suggested expenditure compression to stick to the target. "Discretionary expenditure budgeted may need to be compressed, and subsidies restructured, in the remaining months of the financial year in a growth friendly manner to limit fiscal slippages," Rangarajan said. The PMEAC expects the agriculture and industry to grow by 4.8 per cent and 2.7 per cent respectively. The growth of services sector is pegged lower at 6.6 per cent in current fiscal.

Noting that the government's fiscal deficit in first four months has reached 63 per cent, Rangarajan said there is a need to have adjustment in domestic prices of petroleum products to contain expenditure. "All that required is to have adjustment in the domestic prices (of petroleum products)," he said adding this could be done by one time increase followed by monthly hikes of a lower order.

As regards rupee, Rangarajan hoped "at the current level (it) is well corrected. Stability is returning to the foreign exchange market. As capital flows return, and as CAD begins to fall, this tendency will strengthen". However, he added the current stance of monetary policy should continue until stability in rupee is achieved.

The rupee has lost over 20 per cent since April and had touched a life time low of 68.86 to a dollar on August 28. It is currently trading at 63.44 to a dollar. Rangarajan said March end WPI inflation will be at 5.5 per cent as rupee depreciation could harden commodity prices. The retail inflation in August stood at 9.52 per cent, while the WPI numbers in July was at 5.79 per cent.

Much of the monetary policy easing would depend on developments in the forex market, Rangarajan said adding "controlling CAD remains main concern at present". The trade deficit is projected to come down to around $185 billion in 2013-14, from $195.7 billion in 2012-13.

Elaborating on the growth prospects, Rangarajan hoped that the economy would perform better in the second half of 2013-14 as the impact of measures taken by the government over the last six months would become visible. The GDP growth in April-June quarter fell to a four year low of 4.4 per cent. The Cabinet Committee on Investment (CCI), Rangarajan said, has cleared 209 projects worth Rs 3.84 lakh crore.