Federation of Indian Chambers of Commerce and Industry (Ficci) has observed that there were still downside risks to achieve gross domestic product (GDP) growth of 6.9 per cent in the current financial year.
This is due to manufacturing and mining sectors are not doing well, as assumed, it said.
Ficci — in its economy watch for December 2011-January 2012, discussed at the national executive committee meeting here on Friday — said: “Projected real GDP growth in current financial year is at 6.9 per cent, buoyed by a lower base. However, there is a possibility of growth falling below 6.9 per cent.”
A Ficci official told Business Standard: “Real GDP growth for 2011-12 is projected at 6.9 per cent. However, this growth rate was achieved based on a significant downward revision in the quick estimates for 2010-11. Additionally, even this projection may be difficult to achieve, as the construction sector and even the trade, hotels, transport and communication sector growth rate in second half of current financial year basis 6.9 per cent may be on the higher side.”
The news of the Indian economy was not getting better, said the chamber. First it was the news of a sub-seven per cent GDP growth in the current financial year and now the December index of industrial production (IIP) numbers coming as another shocker. However, what has been really surprising was the dramatic pull back in rupee value in January, it said.
After touching a low of on 54.23 on December 15 last year, the rupee has now touched 48.7 on February 6. “While analysts have quickly attributed the recovery in rupee value to the resurgence in portfolio capital flows (cumulative portfolio flows from December 2011-February 6 is now $11 billion), we feel that the smart move by Reserve Bank of India (RBI) of changing track and intervening in the forward exchange market, did the trick,” Ficci said in its economy watch.
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Moreover, Ficci said there has been a liquidity withdrawal of nearly Rs 55,000 crore during November-December 2011 because of foreign exchange market intervention. This perhaps sets the perfect recipe of another round of cash reserve ratio (CRR) cut in March to offset such a negative impact.
“It is worth mentioning that news of RBI intervention in the foreign exchange market does have an effect on the exchange rate. Hence, in unfavourable times it is important that the RBI uses the news channel as an important signaling mechanism to curb the volatility in the rupee value,” Ficci noted.
On Food Subsidy Bill, Ficci said the country needs to improve delivery mechanisms drastically to plug the leakages in order to implement such type of food safety Bills.
Measures such as involving gram panchayats, self-help groups, van suraksha samitis of fair price shops could be used as an effective delivery mechanism to plug leakages. “It may not be completely misplaced to argue that the additional expenditure for implementing the food subsidy Bill is far greater, by order of magnitude to any actual revenue forgone for promoting economic activity in the country,” Ficci added.