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Govt pares growth forecast to 7-7.5%

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Mid- year economic analysis confident of meeting this year’s fiscal deficit target, but hints at deferring fiscal deficit target dates
The government on Friday lowered its forecast for gross domestic product ( GDP) growth to 7- 7.5 per cent in this fiscal year, down from an earlier forecast of 8.1- 8.5 per cent. Though it stuck to the fiscal deficit target of 3.9 per cent of the GDP for the year, Chief Economic Advisor Arvind Subramanian said at a press conference that the target of 3.5 per cent looks challenging for next year.
The mid- year economic analysis tabled in Parliament struck a note of caution by saying there was a case for re- assessment of the medium- term fiscal consolidation road map because of the additional expenditure due to the recommendations of the Seventh Pay Commission and the higher pension payout for defence veterans next year.
“If the government sticks to the path for fiscal consolidation, that would further detract from demand. On these assumptions, and unless supply side reforms provide an impetus to growth, real GDP growth next year based on an analysis of demand is not likely to be significantly greater than growth this year,” the report said.
The mid- year review, which was prepared by Chief Economic Advisor Arvind Subramanian and his team, examined the trends in receipts and expenditure for the first two quarters of the year in relation to the budget and provided astatement explaining deviations in meeting the government’s fiscal obligations.
The analysis said weak exports and low private sector investment were among the reasons for lowering the GDP growth forecast.
“Given the challenges, we estimate that real GDP growth for the year as a whole will lie in the 7- 7.5 per cent range,” the report said. It forecast nominal GDP growth for the year at 8.2 per cent.
“The economy is recovering, but it is hard to be definitive about the strength and breadth of the recovery for two reasons: the economy is sending amixed signal and there is some uncertainty on how to interpret the GDP data. The data uncertainty is, in fact, reflected in the mixed, sometimes puzzling, signals emanating from the economy,” Subramanian told reporters after the tabling of the analysis.
FOR CURRENT FINANCIAL YEAR
  • Sees GDP growth at 7- 7.5% vs 8.1- 8.5% earlier |Says fiscal deficit target of 3.9% of GDP will be maintained
  • Says weak private investmentand exports among prime reasons for forecast cut
  • Says no need for expenditure cuts to meet fiscal deficit target
  • Says revenue buoyancy in H1 encouraging
  • Says mixed signals coming from economic data; sees nominal GDP growth at 8.2%
FOR NEXT FINANCIAL YEAR AND BEYOND
  • SeesOROP/ PayCommissionburdenonexpenditure
  • Says fiscal consolidation road map needs to be reassessed
  • Says if fiscal road map maintained, it may affect demand and thus growth rate
  • Says continuing need to maintain high levels of public spending in infra
  • Says benefits from low oil prices may not be as visible next year
  • Forecasts pick- up in exports
Business Standard, New Delhi, 19th Dec. 2015

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