The government's economic survey projected a higher growth at 5.4% to 5.9% in 2014-15 overcoming the sub-5% growth (of gross domestic product or GDP) reported over last two years. The government's optimism follows the recovery in the global economy and moderation in inflation. The survey also said the moderation in the inflation would ease the central bank's monetary policy stance, and revive the confidence of gobal and foreign investors.
The survey, released on the eve of the Union budget, said the risks to the growth projection would be the poor monsoon, the slowdown in the external environment and the poor investment climate.
Finance secretary Arvind Mayaram said: "The economic survey conveys a sense of urgency about the course the economy needs to take not only to capture the growth momentum fast, but also ameliorate the long-standing structural problems that undermine the economy's long-term potential."
The survey emphasised on reviving investments by improving long-term growth prospects. "For this, reforms are needed on three fronts: creating a framework for sustained low and stable inflation, setting public finances on a sustainable path by tax and expenditure reform, and creating the legal and regulatory framework for a well-functioning market economy," it added.
Sugata Bhattacharya, chief economist, Axis Bank, said the government is hedging its growth projections by giving a range and may end up at the lower end of the band. "But the expectation of growth is well founded as the Indian economy will improve in tandem with the recovery in the global economy. Revival of the capex cycle will also augur well for growth in the economy," he said.
Inflation showed signs of receding with average wholesale price index (WPI) inflation falling to a three-year low of 5.98% during 2013-14, compared to 7% and 9% over the previous two years. Consumer price inflation, though higher than the WPI, has also exhibited signs of moderation, declining from 10.21% during FY 2013-14 to about 9.49% in 2013-14. Food inflation, however, remained stubbornly high during FY 2013-14, reaching a peak of 11.95% in third quarter.
Gaurav Kapur, senior economist, Royal Bank of Scotland, believes that the growth projections are "not unrealistic" with the global economy reviving, inflationary pressures receding, interest rates peaking and with stalled projects going on stream. "Our own growth projections are also close to the government outlook at 5.5%. The monsoon is a risk specially on perishable goods like vegetables where the government will have to improve the supply chain management," he said.
The growth slowdown in the last two years was broad based, affecting in particular the industry sector. Inflation too declined during this period, but continued to be above the comfort zone, owing primarily to the elevated level of food inflation," said the survey.
The survey also pointed out that India had a demographic dividend which was also a liability unless they are trained and skilled to take up industrial jobs.
—With inputs from Ashutosh Kumar in New Delhi
Economy likely to grow at 5.4-5.9% in 2014-15
Poor monsoon, high crude and slower than expected global recovery could pose challenges
Wholesale Price Index (WPI) inflation falls to 3-year low of 5.98% during 2013-14
Consumer Price Inflation (CPI) shows signs of moderation
Both WPI, CPI expected to go downward
Balance-of-payments position improved dramatically in 2013-14 with CAD at $32.4 billion (1.7% of GDP) as against $88.2 billion (4.7% of GDP) in 2012-13
Annual average exchange rate of the rupee went up from 47.92 per dollar in 2011-12 to Rs54.41 per dollar in 2012-13 and further to Rs60.50 per dollar in 2013-14