The Prime Minister's Economic Advisory Council (PMEAC) today differed from the Finance Ministry's optimism that the current account deficit (CAD) would be fully financed without drawing down from the forex reserves in 2013-14. It also said containing the Centre's fiscal deficit at 4.8% of GDP in 2013-14 would be a challenge.
Though agreeing with the Ministry that CAD will come down to $70 billion (3.8% of GDP) in 2013-14 from $88 billion (4.8% of GDP) in 2012-13, the council in its Economic Outlook for 2013-14 estimated net capital flows to be just $61.4 billion this year, necessitating withdrawal of $8.6 billion from forex reserves to finance the deficit on current account.
Council chairman C Rangarajan tried to down play differences with the Finance Ministry on this front, saying the situation on this front may improve as well.
Gold imports, one of the contributors to widening trade deficit, are projected to fall to $38 billion this fiscal from $ 53.8 billion in 2012-13. However, Rangarajan cautioned that there may be a pick-up in gold imports in the coming festive season.
The Council said it would be a challenge to contain fiscal deficit at projected 4.8% of GDP and prescribed cutting discretionary expenditure and restructuring subsidies.
With RBI slated to announce monetary review next week, Rangarajan said the central bank is in a dilemma on the stance due to issues on price, rupee and growth fronts. However, he expected RBI to continue with present stance till the foreign exchange markets stabilise.
The Council cut economic growth to 5.3% in the current financial year from its earlier estimates of 6.4%. Though it is a shade lower than Prime Minister Manmohan Singh's expectations of 5.5%, independent analysts have pegged it at sub-5%.
PMEC expected investment rate to fall to 34.7% of GDP in 2013-14 compared to 35% a year ago. To improve investment climate, the think tank prescribed a host of measures including sorting out transfer pricing issues with companies and addressing tax issues in sectors like electronics.
| Council Also Said: |
| i) GDP To Get Boost From Agriculture |
| ii) Services Growth To Fall to 6.6% in FY'14 from 7.1% in Previous Yr |
| iii) Manufacturing A Concern |
| iv) Pegs WPI Inflation At 5.5% By March-end Against RBI's Projections Of 5% |
| iv) Investment Climate Also Deteriorated Due To Some "Non-Economic" Issues In Society |
| v) Prescribes Government To have stable FDI regime, develop bond markets, intervene Strategically In Energy Sector |
"They (rating agencies) should read our report. There is no case of downgrading India's sovereign ratings." - C Rangrajan
