Govt Thumbs RBI for a Lift on Road to Growth GDP growth seen at decade-low of 5.7-5.9%, but govt expects rebound in H2

Declaring that the economic slowdown had "bottomed out" and inflation was "moderating", the government has predicted growth rebounding in the second half and made a pitch to the Reserve Bank of India (RBI), which reviews its monetary policy on Tuesday, for "supportive" steps to keep up the spirits.  In its mid-year economic analysis presented in Parliament on Monday, the finance ministry said it expected GDP growth of between 5.7% and 5.9% for the year, which is lower than the 7.6% budgeted but higher than 5.4% achieved in the first half. This, the government said, meant the growth rate for the second half would be "close to around 6%", as it made an undisguised pitch to RBI to oblige by cutting rates. "To achieve this, both fiscal and monetary policies, however, would need to be supportive to sustain investor confidence," the review said.  The Reserve Bank is due to review monetary policy on Tuesday and most analysts do not expect a rate cut just yet. The central bank has been under enormous pressure to cut rates from industry and the finance ministry, both of which believe a monetary easing at this stage will lift spirits and ultimately aid growth revival.  In any case, the review indicated that a rate cut was inevitable later even if it did not happen on Tuesday. "A further moderation in inflation, likely to commence from the fourth quarter of the current year, together with benign global commodity prices will also facilitate softening of the monetary policy stance of RBI," it said, expecting the inflation rate to be 6.8-7% by the end of March. Clear Signs of Improvement:Rajan  Chief Economic Advisor Raghuram Rajan, who heads the ministry's economic division that prepared the midyear analysis document, said there were clear signs of improvement in India's economy despite difficulties the world over. He cited an upturn in the Business Expectation Index for the October-December quarter, resurgence of growth in manufacturing sector, improved internal accruals at companies, better rabi crop prospects, improvedperformance of service sector, and moderating inflation as evidence. "India is an oasis... Who else is growing in the world?" Rajan said, as he suggested a three-pronged strategy to consolidate the economic recovery — a confidenceinducing budget, speedier clearances for projects and capital market reforms. The government, which has unveiled a fiscal consolidation road map, also expressed confidence that this year's fiscal deficit would be contained at 5.3% of GDP, worse than the 5.1% indicated in the budget but better than what independent experts have pencilled in at this stage. Even though it indicated confidence in sticking to its revised deficit target, the mid-year analysis flagged up challenges in areas such as disinvestment receipts and a higher subsidy bill. "Uncertainty on account of disinvestment receipts and likely higher subsidy requirement does make it a challenging task to adhere to the overall fiscal deficit target during 2012-13… Achieving the target of . 30,000 crore (from disinvestments) during the remaining period of 2012-13 would be a challenge," the review said. Experts said the government's mid-year self assessment was cautiously optimistic.  "The report takes a very cautious view of the economy, though more on the optimistic side. A 6% growth in the second half would need serious changes and I don't see that happening," said Madan Sabnavis, chief economist at CARE ratings. Markets too were not too impressed. The Sensex closed nearly 0.4% lower while the rupee closed at a threeweek low against the dollar. The midyear analysis emphasised the need to keep a watch on the burgeoning current account deficit even though it said the deficit figure was unlikely to be as high as last fiscal year's 4.2% . It also cautioned against a decline in foreign exchange reserves.