 "FY14 growth outlook cut to 6%")
The Asian Development Bank (ADB) today scaled down its projection for India’s growth in 2013-14 from 6.5 per cent to six per cent. For 2012-13, growth in India’s gross domestic product (GDP) was estimated at a decadal-low of five per cent.
In its report, Asian Development Outlook 2013, the Manila-based ADB said this financial year, inflation would stand at an average of 7.2 per cent, against 7.4 in the April-February period of 2012-13. It said inflation would fall to an average 6.8 per cent in 2014-15, provided the government corrected fuel prices and addressed supply-side constraints in food items.
An ADB economist forecast the Reserve Bank of India would cut the policy rate by 25-50 basis points this financial year.
The growth forecast by the multilateral agency was a tad below the band of projections in the Economic Survey — 6.1-6.7 per cent. ADB said these forecasts were optimistic, as there were risks such as another bad monsoon, slow reforms and slow global economic growth.
The India Meteorological Department is yet to come out with its first monsoon forecast for this year.
In its supplement to the annual outlook for 2012, ADB had pegged India’s economic growth in 2013-14 at 6.5 per cent. Earlier, it had projected 2013-14 growth at 6.7 per cent. While Budget 2013-14 had estimated economic growth this financial year at 6.4 per cent, Planning Commission Deputy Chairman Montek Singh Ahluwalia had projected it at 6.5 per cent.
ADB said the improved global prospects, easing inflation and structural reforms would push growth to 6.5 per cent in 2014-15. This means for the first three years of the 12th five-year Plan, average annual GDP growth would be 5.83 per cent, close to what the Planning Commission had projected as the worst-case scenario. At the recent annual general meeting of the Confederation of Indian Industry, Prime Minister Manmohan Singh had said India should revert to eight per cent growth in the medium term.
Though policymakers had hoped the quarter ended March would show signs of a recovery, the signals haven’t been forthcoming. The eight core sector industries, which have a weight of 38 per cent in the Index of Industrial Production, contracted in February, the first time since July 2005. The HSBC Purchasing Managers’ Index for manufacturing fell to a 16-month low in March; for services, PMI stood at a 17-month low.
ADB chief economist Changyong Rhee said: “Supply and policy obstacles have seen growth decelerate and investment and industrial output slump, with the stasis compounded by weak global demand. Policymakers need to remove structural hurdles to faster growth, and while there have been some encouraging reforms recently, more is needed,”
The ADB report said the prospects of the Centre meeting the fiscal deficit target of 4.8 per cent of GDP this financial year were contingent upon growth picking up. This is because the tax structure for 2013-14 is almost unchanged, apart from some changes such as a 10 per cent surcharge on those earning more than Rs 1 crore, besides a few alterations in excise and Customs duty.
In its report, Asian Development Outlook 2013, the Manila-based ADB said this financial year, inflation would stand at an average of 7.2 per cent, against 7.4 in the April-February period of 2012-13. It said inflation would fall to an average 6.8 per cent in 2014-15, provided the government corrected fuel prices and addressed supply-side constraints in food items.
An ADB economist forecast the Reserve Bank of India would cut the policy rate by 25-50 basis points this financial year.
The growth forecast by the multilateral agency was a tad below the band of projections in the Economic Survey — 6.1-6.7 per cent. ADB said these forecasts were optimistic, as there were risks such as another bad monsoon, slow reforms and slow global economic growth.
The India Meteorological Department is yet to come out with its first monsoon forecast for this year.
In its supplement to the annual outlook for 2012, ADB had pegged India’s economic growth in 2013-14 at 6.5 per cent. Earlier, it had projected 2013-14 growth at 6.7 per cent. While Budget 2013-14 had estimated economic growth this financial year at 6.4 per cent, Planning Commission Deputy Chairman Montek Singh Ahluwalia had projected it at 6.5 per cent.
ADB said the improved global prospects, easing inflation and structural reforms would push growth to 6.5 per cent in 2014-15. This means for the first three years of the 12th five-year Plan, average annual GDP growth would be 5.83 per cent, close to what the Planning Commission had projected as the worst-case scenario. At the recent annual general meeting of the Confederation of Indian Industry, Prime Minister Manmohan Singh had said India should revert to eight per cent growth in the medium term.
Though policymakers had hoped the quarter ended March would show signs of a recovery, the signals haven’t been forthcoming. The eight core sector industries, which have a weight of 38 per cent in the Index of Industrial Production, contracted in February, the first time since July 2005. The HSBC Purchasing Managers’ Index for manufacturing fell to a 16-month low in March; for services, PMI stood at a 17-month low.
ADB chief economist Changyong Rhee said: “Supply and policy obstacles have seen growth decelerate and investment and industrial output slump, with the stasis compounded by weak global demand. Policymakers need to remove structural hurdles to faster growth, and while there have been some encouraging reforms recently, more is needed,”
The ADB report said the prospects of the Centre meeting the fiscal deficit target of 4.8 per cent of GDP this financial year were contingent upon growth picking up. This is because the tax structure for 2013-14 is almost unchanged, apart from some changes such as a 10 per cent surcharge on those earning more than Rs 1 crore, besides a few alterations in excise and Customs duty.
Many economists had predicted India wouldn’t be able to meet its fiscal deficit target. However, Finance Minister
P Chidambaram had recently said the fiscal deficit for 2012-13 would be lower than 5.2 per cent, as the tax collection target of Rs 10.38 lakh crore had been met.
The ADB report pegged inflation in 2013-14 at 7.2 per cent. It said this would fall to 6.8 per cent in 2014-15, if diesel prices were further raised and supply-side bottlenecks affecting the agricultural sector were addressed.
“RBI is likely to cut interest rates by 25-50 basis points this year,” said Abhijit Sen Gupta, economist with ADB’s India resident mission. After much persuasion by the finance ministry, RBI had recently cut the policy rate by 25 basis points. However, it had said the headroom for future rate cuts was limited.