India’s growth in the current fiscal will exceed 7.5 per cent as there are “silver linings” in the global financial turmoil, with government committed to ensuring that the country remains a “bright spot” in the world economy, the Finance Ministry said today.
“This year we are targeting about 7.5 per cent to 8 per cent growth. We are quite confident that upwards of 7.5 per cent is what we can reasonably expect,” the Economic Affairs Secretary, Shaktikanta Das, said at an ICRIER event here.
The ministry believes that India remains as one of the very few bright spots in the global economy, a view echoed by the IMF as well, he said.
“But that is no cause for complacency and the government is committed to continue to take necessary measures to retain that position for India,” he said, adding that India will account for 18 per cent of the global growth.
The Indian economy expanded by 7 per cent in the first quarter (April-June) of current fiscal. In last fiscal, the GDP growth was 7.3 per cent.
'Silver lining'
Das said the US-Iran deal, the shale gas revolution, the expected innovation in solar energy and developments around fighting the menace of black money and terror funding would act as “silver linings” for the global economy.
“There are silver linings and while we recognise that world economy today has become volatile, which many people say has become the new normal, there are also opportunities, there are also silver linings,” Das said.
He said “while volatility and uncertainty are new normals, India is uniquely placed to be the bright spot and government is taking necessary policy measures. It is India’s chance to grow and government will see that this opportunity is not stifled“.
He said there has been some concerns around agriculture sector, but there is some visibility of pick-up in rural demand. Besides, increased infrastructure spending and more FDI coming in with global majors like GE and Foxconn investing in India make a case for better manufacturing output.
“Emphasis on manufacturing does strengthen our expectation that growth numbers will be maintained. IIP figure show improvement in capital goods and manufacturing. We are quite confident that growth rate will be 7.5 per cent plus,” Das said, adding FDI jumped 40 per cent to Rs 60,300 crore in April-June.
Twin deficits under control
India is considered as one of the few bright spots because of various reasons — the twin deficits (CAD and the fiscal deficit) are well in control, and forex reserves are fairly comfortable, he said.
He said the RBI and the government are monitoring the current account deficit position and will take steps to keep it at manageable levels.
The CAD, which is the difference between the inflow and outflow of foreign currency, narrowed to 1.2 per cent of GDP in April-June quarter, from 1.6 per cent in the same period last fiscal.
Das said fiscal deficit will be within the budgeted level of 3.9 per cent and revenues are buoyant.
“There are some concerns with regard to corporate profits having come down and affecting the corporate results and therefore the direct tax collections. But, the indirect tax collections have been very buoyant and I’m sure overall budgeted tax numbers will be achieved,” he said.
Low commodity prices
Although low commodity prices pose a challenge, there are positives for India and it is time to capitalise on them. A decline in crude prices has helped lower inflation as well as subsidy expenditure.
The steel sector is facing problems because of a surge in imports, but the downstream industries like automobile, machine goods makers and power equipment manufacturer, are getting it at a cheaper price, Das said.
“Overall it also has a sobering effect on input cost and to that extent these sectors of our economy are likely to become more competitive globally. Cement is also another area where falling prices should be helpful to construction sector,” he said.
China's currency volatility
On the impact of China’s currency volatility and the overcapacity there, he said India is insulated from them as the country is not a part of Chinese manufacturing value chain.
He said given the global crisis, India is now focusing on governance reform, strengthening resilience in macro economy so that it can seize the opportunity that the current global situation throws up.
“Government is committed to continue with reforms, ease of doing business,” Das said, cautioning that over regulation in any sector needs to be avoided.
Gold monetisation, gold bond schemes
As regards the twin schemes approved by the Cabinet last week to bring down gold import, Das said the gold monetisation scheme would help in conversion of idle gold to cash.
Gold bond scheme would wean away investors from physical gold, he said, adding that whatever additional borrowing is done through it would be within the fiscal deficit target.
Speaking at the event, Railway Minister Suresh Prabhu said the global integration would pose certain challenges and how to deal with that challenge is the most important issue before the G20, because they together account for 85 per cent of the global economic output.
He said there was a need to create a new system where monetary policies of one country takes into account the challenges of other countries who could be affected by it.