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Monday, December 17, 2012

Worst may be over for eco: Govt Growth Target Lowered But Review Sees Brighter Prospects In 2nd Half


New Delhi: The government on Monday suggested that the worst may be over for the faltering Indian economy and it is headed for a recovery in the second half of 2012-13. But the mid-year review of the economy presented in Parliament scaled down growth projection for the current fiscal year to 5.7-5.9% from the previous estimate of 7.6%, citing the slowdown in the previous quarters. 
    Even at the scaled down level, the government's estimate is more optimistic than what most economists and agencies have suggested. It is, however, inline with RBI's forecast of 5.7% growth in the current financial year. The optimistic assessment for the second half of the fiscal year was based on a rebound in industrial growth of 8.2% in October 2012, better corporate profit margins, moderation in inflation and better business expectations for the third quarter. "There are, however, reasons to believe that the slowdown has bottomed out and the economy is headed towards higher growth in the second half of 2012-13," the review said. 
    The finance ministry is also confident of meeting the fiscal deficit target of 5.3% of GDP for the current fiscal year despite challenges on raising Rs 30,000 crore from stake sales in state-run firms and slowdown in revenues.
"Given such an emerging scenario, it should be possible for the economy to improve the overall growth rate of GDP to around 5.7 to 5.9% for the year 2012-13. This would imply that the growth rate for the second half of the year 2012-13 would be close to around 6%," the review said in its outlook for Asia's third-largest economy. "To achieve this, both fiscal and monetary policies, however, would need to be supportive to sustain investor confidence. The government will also have to address the concerns relating to structural supply side bottlenecks," it said. 
    The review said the reform steps undertaken by the government and the fiscal consolidation roadmap 
should provide room for RBI to ease policy. The RBI will review monetary policy on Tuesday and a majority of economists say they expect the central bank to hold rates given sticky inflation. 
    The review defended the RBI's tight monetary policy in the previous months saying there were several risks to inflation. The review said a further moderation in inflation, likely to commence from the fourth quarter of the current year and together with benign global commodity prices, will also facilitate softening of the monetary policy stance of RBI. Inflation at the end of March 2013 is expected to moderate to 6.8-7% level, it added. The review said achieving the target of rais
ing Rs 30,000 crore from disinvestment in 2012-13 would be a challenge given the present trend and prevailing scenario in the capital market but said efforts were on to fast-track stake sales. It said on the tax revenue side, the trend growth in the mid-year was lower than estimated and achieving targets would be difficult. 
    "While the targets may be achieved in taxes on income other than corporation tax and service tax, achieving targets in corporation tax on the direct tax side and customs and central excise duty on the indirect tax side is somewhat difficult given the trend so far," the review said, attributing it to slower economic growth and the global economic slowdown.


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