C Rangarajan cuts GDP forecast to 5.3%, says CAD can be reined in

The Prime Minister’s Economic Advisory Council (PMEAC), chaired by C  Rangarajan, a former governor of the Reserve Bank of India (RBI), has lowered the gross domestic product (GDP) growth forecast for this fiscal to 5.3% from its earlier projections of 6.4%.

The revised forecast is roughly in line with projections of the RBI and many private economists, who expect the Indian economy, whih is Asia’s third-largest, to grow at around 5%, the same level as last fiscal.

A pick-up in automobile production and exports in August indicated that the manufacturing sector would do better in the second half than the first, said Rangarajan. He stressed that the government needs to take a slew of measures such as liberalisation of foreign direct investment (FDI) to give a fillip to the economy.

Rangarajan hoped that the current account deficit (CAD) in 2013-14 could be lower than the $70 billion that the government is targeting if current trends in exports and imports continued, citing data showing the trade deficit had narrowed in August.  The CAD stood at $88.2 billion a year ago.

In its ‘Economic Outlook for 2013-14’ released on Friday, the council said that containing the fiscal deficit this financial year within the budgeted estimate of 4.8% will remain a challenge (estimated 4.9% last fiscal). “The fiscal deficit during the first four months of the current financial year has already reached 62.8%, and expenditure on major subsidies 51.3%, of the budgetary provision for the full financial year.”

The finance ministry’s ‘Economic Survey’ presented in Parliament in February had projected growth in the range of 6.3% to 6.7% this fiscal. The RBI had also curtailed GDP growth forecast to 5.5%.

“The government should liberalise FDI, iron out tax-related issues, fast-track public sector investment and initiate measures to contain fiscal deficit,” the council said.

He said the rupee is well-corrected at the current levels – the Indian currency closed the week at 63.50 to the dollar – and stability appears to be returning to the foreign exchange market.

The council said inflation for this fiscal was expected to be 5.5%, lower than the 6% recorded last fiscal. “During 2013-14, the good performance in agriculture will have a moderating effect on food inflation, depreciation of the rupee may put some upward pressure. On balance, the WPI inflation by end-March 2014 will be around 5.5% as against the average of 7.4% in 2012-13 and 5.7% at end-March 2013,” said Rangarajan. With Reuters