The Prime Minister’s Economic Advisory Council (PMEAC) on Friday refused to buy the sub-six per cent projections of economic growth made by brokerage firms and instead pegged the rate of GDP expansion at 6.7 per cent for the financial year, a shade higher than 6.5 per cent in 2011-12.
Releasing the economic outlook for 2012-13, PMEAC Chairman C Rangarajan and member Saumitra Chaudhuri questioned the estimation of GDP growth by brokerage firms but agreed with rating agencies on concerns over economic growth, the fiscal deficit and the current account deficit.
Amid the prospect of a downgrade of India’s sovereign rating by global rating agencies, the council asked the government to meet the Budget target of reining in the fiscal deficit at 5.1 per cent of GDP in 2012-13 by raising diesel prices in phases and cutting LPG subsidies through a cap on the number of cylinders at a level of consumption close to that of poor households, say, four in a year. That would reduce the subsidy outgo by Rs 18,000 crore.
| PMEAC’s PROJECTIONS (in %) | ||
| FY12 | FY13 | |
| GDP growth | 6.5 | 6.7 |
| Agriculture growth | 2.8 | 0.5 |
| Mining growth | -0.9 | 4.4 |
| Manufacturing growth | 2.5 | 4.5 |
| Industry growth | 3.4 | 5.3 |
| Services growth | 8.9 | 8.9 |
| Current account deficit | 4.2 | 3.6 |
The council recommended allowing up to 49 per cent foreign direct investment (FDI) in multi-brand retail, as against 51 per cent cleared by the Cabinet to evolve a consensus on the issue. It also wants FDI up to 49 per cent in Indian airlines. It pegged the current account deficit (CAD) at 3.6 per cent of GDP against 4.2 recorded last fiscal. At 3.6 per cent, the CAD will still be higher than three per cent in 1990-91, when the balance of payments crisis hit India.
Pegging inflation at 6.5-7 per cent by the end of 2012-13, Rangarajan said if inflation continued to remain stable, the RBI would have space for monetary easing but the timing was in the court of the central bank.