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GDP will grow. And now, the bad news...

Thursday, 28 February 2013 - 8:00am IST Updated: Thursday, 28 February 2013 - 1:27am IST | Place: New Delhi | Agency: dna
You read the good news in the headline: the Economic Survey expects GDP growth to rebound to 6.1-6.7% in the next fiscal from barely 5% in this one. The calculus, however, is predicated on many factors that are not in the government's control, such as the looming global slowdown and the festering crisis in Europe.

You  read the good news in the headline: the Economic Survey expects GDP growth to rebound to 6.1-6.7% in the next fiscal from barely 5% in this one. The calculus, however, is predicated on many factors that are not in the government’s control, such as the looming global slowdown and the festering crisis in Europe.

Raghuram Rajan, the Survey’s author and the country’s chief economic advisor, admitted it’s a wide guidance band: “It’s so because of a wide amount of uncertainty on the domestic and overseas fronts.”

And he was more apposite: “India’s situation is difficult, and a lot needs to be done. To put things back on track, there have to be efforts on removing bottlenecks in job creation, large-scale investment, and encourage the small and medium scale enterprises. Slowdown is a wake-up call to increase the pace of actions and reforms.”

His prescription for reviving the economy: shift expenditure from consumption-led to investment-led, remove bottlenecks to investment, growth and job creation, manage inflation, lower borrowing costs and ensure that savers get strong real returns and reduce government bottlenecks to investments.

According to the Survey, India will see up to 16.7 million “missing jobs” – or jobs which the country needs to create given the demographic transition compared with the current pace of job creation and absorption.

The challenge, point out Suvodeep Rakshit, Indranil Pan and Madhavi Arora of Kotak Securities in a note, are twofold: (1) Make jobs more productive to boost long-term growth rate and (2) add more jobs so as to adequately capture the demographic dividend which otherwise will be more of a burden in terms of higher unemployment and lower productivity.

So what is in store for the aam aadmi? Fuel price hikes going forward, as the Survey has called for an all-out war on subsidies, building the case for Finance Minister P Chidambaram’s Budget moves.

“Controlling the expenditure on subsidies will be crucial. Domestic prices of petroleum products, particularly diesel and liquefied petroleum gas (LPG), need to be raised in line with the prices prevailing in the international markets,” observed the economic survey.

Devendra Kumar Pant, chief economist at India Ratings, a unit of Fitch Ratings, expects LPG pricing reforms based on the assessment of who receives the LPG subsidy.

The other good news  on the fiscal front is that the Survey said India would most likely hit the fiscal deficit target of 5.3% of GDP this fiscal notwithstanding a big revenue shortfall – and thanks to expenditure cuts.

That’s a big change because Rajan had earlier said the 5.3% goal was ‘tough’.
Sonal Varma and Aman Mohunta, economists at Nomura Securities expect the government to project a fiscal deficit of 4.6% for next fiscal.

“At least for Thursday’s budget, the survey suggests that the government will present a fiscally prudent budget,” they said in a note.




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