After various global and private agencies lowered India’s growth forecast for the current financial year to below eight per cent, the finance ministry on Monday took note of the ongoing global economic slowdown and further reduced its estimate to 7.5 per cent.
“There is slowdown across the world... Our growth rate would be 7.5 per cent to eight per cent,” Kaushik Basu, chief economic advisor in the finance ministry, said at an event to commemorate 25 years of partnership between India and the Manila-headquartered Asian Development Bank.
Last week, Finance Minister Pranab Mukherjee had said the economy would grow in the range of 8-8.2 per cent in 2011-12, which would be made possible by good growth in the second half. He cautioned the global situation could affect our exports, foreign investment and commodity prices.
In the Budget earlier this year, the government had projected the economy to grow at nine per cent in 2011-12 — higher than 8.5 per cent growth recorded in 2010-11. Weak global sentiments, however, are posing a threat to this growth target. The economy grew at just 7.7 per cent in the first quarter (April-June) of the current financial year, which was lowest in 18 months.
Annual growth of 7.5 per cent would mean the growth in the coming quarters could be even less than 7.5 per cent. For the economy to grow at eight per cent or more, the remaining three quarters would have to show better results. Traditionally, the past two quarters fare better than the first two.
Basu, however, said he was expecting some slowdown in the second half of the year, but after that growth would pick up and the economy was expect to do better over medium to long-term.
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“We expect a little bit of slowdown but growth will pick up… Long-run drivers of growth are remarkably good… foreign direct investment this year looks very good,” he added.
Meanwhile, the Planning Commission said, “the overall growth rate for 2011-12 will depend on a number of factors like international economic environment which at present is very volatile and the continued inflationary pressure prevailing in the country.”
Various domestic and international agencies have scaled down India’s growth forecast to as low as 7.4 per cent (HSBC) for this financial year. Ratings agency Moody’s has pegged it at 7.5-8 per cent, while Crisil has lowered it to 7.6 per cent. The Reserve Bank of India and the Prime Minister’s Economic Advisory Council expect the economy to grow at eight per cent and 8.5 per cent, respectively. Exports grew by over 52 per cent at $160 billion in the first half of this financial year.
| SCALING DOWN OF GDP GROWTH FOR FINANCIAL YEAR 2011-12 | ||
| Institution | Month (2011) | GDP growth forecast (%) |
| Ministry of Finance | February | 9.0 (Economic Survey) |
| July | 8.6 (Finance Ministry’s Background Note) | |
| October | 8.0 to 8.2 (FM Pranab Mukherjee) | |
| October | 7.5 to 8.0 (Chief Economic Advisor Kaushik Basu) | |
| Prime Minister’s Economic Advisory Council (PMEAC) | February | 9.0 |
| July | 8.2 | |
| September | 8.0 (C Rangarajan’s personal estimate) | |
| Reserve Bank of India (RBI) | July | 8.0 |
| September | 8.0 (with downside risks) | |
| International Monetary Fund (IMF) | June | 8.2 (2011), 7.8 (2012) |
| September | 7.8 (2011), 7.5 (2012) | |
| CRISIL | May | 7.7 to 8.0 |
| October | 7.6 | |
| Ficci | July (EOS) | 7.9* |
| September | 7.5 to 8.0 (with significant downside risks) ** | |
| HSBC | October | 7.4 |
| IMF figures are for calendar years. *Ficci July 2011 Economic Outlook Survey (EOS) with independent economists **Ficci estimates the GDP growth to be in the lower band of 7.5% to 8% Sources: Ministry of Finance, PMEAC, RBI, IMF, Crisil, Ficci, HSBC | ||
However, the pace of growth has decelerated in September compared to earlier months. Industrial growth slowed to 4.1 per cent in August on account of poor performance by the manufacturing sector and a decline in mining output.