Prospects of good monsoon, industrial growth to push growth
The National Council for Applied Economic Research (NCAER) has revised its growth projection for the economy to 5.8 per cent for 2003-04, compared with its forecast of 5.6 per cent made in March 2003.
But the think-tank's quarterly review of the economy warned that the success of the Maruti initial public offering should not be seen as a return of good times in primary markets.
It said the presence of a strategic partner like Suzuki was the main reason for the runaway success which might not be repeated for other disinvestments. It also said with the elections round the corner, privatisation was unlikely to take off.
The review has warned that the Budget for 2003-04 has done little to promote investment spending to stimulate economic growth. It said alongwith a soft interest rate regime, the Centre should have followed a consistent tax policy.
It said the government's flip-flop on the value-added tax (VAT) policy and the abrupt reduction in the Customs duty on certain capital goods from 25 per cent to 5 per cent in the Budget were factors responsible for low investment spending. The absence of certainty and continuity in tax regime had rendered some plans in 2002-03 as uncompetitive, it added.
Commenting on the actual lending rates from banks, the NCAER review said the gap between prime lending rate (PLR) and deposit rates/gilt yield was conspicuous.
More than a third of outstanding credit above Rs 2 lakh attracted interest in excess of 3.5 per cent, well above the average prime lending rate. This indicated that small borrowers had not benefited from reduction in interest rates, it added.
The review said it had revised the gross domestic product growth forecasts based on the prospects of a good monsoon and strong industrial growth likely in the last quarter of the current fiscal.
According to the think-tank, industry is expected to rebound with a growth rate of 5.9 per cent to 6.3 per cent in 2003-04, while the services growth rate is projected at over 6.4 per cent.
According to the latest NCAER Business Expectations Survey, a larger number of firms said they were hoping for a surge in sales and profit, though a weak investment demand was a worrying factor.
The study has, therefore, identified agriculture as a key source of growth for the economy. A 6 per cent increase in rainfall may help agriculture to post an 8 per cent growth rate in 2003-04.
Another cause of concern is inflation, which has crossed 6 per cent on a year-on-year basis in April. The slippage in tax revenues to the tune of Rs 15,000 crore and a high fiscal deficit are also factors impeding growth.
