CII predicts 7.8% growth for 2003-04

While scaling up its forecast of GDP growth for the year from 7.2 per cent to 7.8 per cent, the Confederation of Indian Industry (CII) has said the tax cuts announced by the Vajpayee government in early-January are not pre-poll sops at the cost of fiscal prudence.

"First, while the tariff reductions are aimed at enhancing welfare once consumer interests are taken into account, they are not transparent enough to get votes for the government. Second, in view of the excellent GDP growth, the buoyancy in the economy will help revenue collection. The estimated revenue loss of Rs 12,000 crore projected by ministry officials is based on current volumes and is unlikely to materialise once growth in volumes is taken into account," a CII report on the state of the economy for the quarter ending December 2003 said.

However, the report mentions that the reduction in the peak rate of Customs duty from 25 per cent to 20 per cent and the removal of the five per cent special additional duty (SAD) has put a large number of industries at disadvantage.

"With the abolition of the 4 per cent SAD, together with the reduction in import tariff, protection to domestic manufacturers in certain sectors has gone down rather sharply," the report added.

Still, the industry association expects growth to pick up in the months to come. "In view of the strong performance in the services sector, we have raised our GDP growth estimate to 7.8 per cent. GDP growth in the first half has been 7.0 per cent, and since agricultural growth should strengthen further over the next two quarters, we expect overall growth in the second half to be higher," the report said.

However, CII has projected a lower growth of 6.7 per cent for 2004-05 as it feels it will be difficult to retain the high agricultural growth even if the monsoon is good, on account of the high growth this year.

In this scenario, it expects the industrial sector to carry forward the growth process. According to CII, the industrial recovery, which had begun in the second quarter of 2002-03, was yet to peak and growth could pick up further during the coming year.

"Given that the domestic investment cycle is turning and that international growth is on an upswing, the positive factors favouring growth currently far outweigh the risks," a CII release said.

CII said the interim Budget presented by Finance Minister Jaswant Singh showed there was an improvement in the quality of the deficit "" fiscal correction had been brought about without compromising on the government's capital expenditure.

Concerns have been raised that the government has brought about a reduction in the fiscal deficit for the year by cutting down on its capital expenditure.