Planning Commission lowers 5-year GDP forecast by 100 bps

A worsening global economic situation has forced the Planning Commission to tone down its growth projections for India by almost 100 basis points.

GDP will now grow between 8.5-8.7% in the 12th Plan period (2012-17) against an earlier 9.5%, the commission predicted on Wednesday.

“We had projected 9.5% growth for the 12th Plan and then scaled it down to 9%. But it would be difficult to achieve that. I think we will grow at 8.5-8.7%,” said Ashwani Kumar, the minister of state for planning.

The commission is working on its approach paper to the 12th Plan, laying out the growth path, which will be sent to the Cabinet by the end of this month.

A decline in growth will mean strain on many of the government’s special sector schemes, experts said.

Even the private sector investment could suffer due to lower demand, said an economist not wishing to be named.

The government had proposed $1 trillion of investments in the infrastructure sector during the 12th Plan.

This is seen as difficult to achieve in the current economic scenario.

On its part, the Ministry of Finance is planning to lower its growth projection for the 2011-12 to 8.6% as against 9% announced in the Union budget speech by the finance minister Pranab Mukherjee on February 28.

The Prime Minister’s Economic Advisory Council, the International Monetary Fund and the Asian Development Bank expect India to grow at 8.2% for this year.

The World Bank and the Reserve Bank of India peg it at 8.2%.
On August 1, Chetan Ahya and Upasana Chachra, economists with Morgan Stanley, said India is heading for its worst growth since the credit crisis of 2008-09.

Clear signs of slowdown have emerged over the last 3-4 months. “Car sales, two-wheeler sales, modern format retail sales, investment and construction spending appear to be moderating,” they said in a note, while lowering their GDP estimates from 7.7% to 7.2% for the current fiscal and from 8.5% to 8% in the next fiscal.