The worst may be over for the economy, and growth may rise to 6 per cent in 2013-14 from this year’s estimate of 5 per cent, the lowest in a decade, the Economic Survey has predicted.

Traditionally presented on the eve of the Union Budget, and prepared under the supervision of the Government’s Chief Economic Advisor, the Survey has projected a growth rate of up to 6.7 per cent for 2013-14. It was tabled by Finance Minister P. Chidambaram in the Lok Sabha on Wednesday.

Interestingly, the previous (2011-12) Economic Survey projected a growth rate of 7.6 per cent with a quarter percentage point deviation on either side. However, within 10 months, the Government , itself lowered the projection to five per cent, an estimate the Finance Minister had questioned earlier, reigniting the debate on the process of estimating growth.

Difficult times

In the introduction, the current Chief Economic Advisor to the Government, Raghuram Rajan, wrote: “These are difficult times, but India has navigated such times before, and with good policies it will come through stronger. Slowdown is a wake-up call for increasing the pace of actions and reforms.”

The way out lies in shifting national spending from consumption to investment, removing the bottlenecks to investment, growth, and job creation, in part through structural reforms and combating inflation, the report added.

While the Budget is widely expected to tighten spending and cut subsidies in a bid to control the rising deficit, the Survey predicted that the “tough” deficit target of 5.3 per cent of GDP was “achievable”.

The Survey, which is regarded as a bellwether of the policy thinking in the Finance Ministry, also indicated that weak corporate growth and falling revenue receipts called for a wider tax base to raise the tax-GDP ratio.

It also mentioned that inflation could be contained both through monetary and supply side measures. It emphasised reducing the costs for borrowers for raising finances and increasing the opportunities for savers to get strong real investment returns. Economists gave thumbs up not just to the growth projection, but also to indications implicit in the Survey.

“The growth projection of 6.1-6.7 per cent is realistic,” said Crisil’s Chief Economist D. K. Joshi. He also mentioned that there was a “strong signal” for fiscal consolidation. The Finance Minister is likely to focus on curtailing the expenditure in the Budget as scope for revenue enhancing measures are “very-very limited,” he added.

Echoing similar sentiments, Chief Economist and Head (Public Finance) of India Ratings and Research Devendra Kumar Pant said the growth estimate is “not too optimistic.”

He felt that the specific proposals of the Economic Survey, which could find its place in the Union Budget 2013-2014, are: Real GDP growth for 2013-14 at around six per cent and nominal GDP growth rate of around 13 per cent, continued reform push such as LPG pricing reform (diesel pricing reform roadmap is already in place), improving investment climate by resolving land acquisition and project clearance issues, and structural reforms to encourage investment.

However, Senior Economist with ICRA Aditi Nayar said the growth forecast of 6.1-6.7 per cent for 2013-14 seems optimistic, unless measures such as those included in the Economic Survey are taken urgently to revive investment activity. For instance, fast tracking projects through the Cabinet Committee on Investments and investments by cash-rich PSUs.

“While monetary easing is expected to continue, the timing of rate cuts would depend on various factors including inflation dynamics and the quality of fiscal adjustment, and the transmission of the easing to lower interest rates would take place with a lag,” she said.

> shishir.sinha@thehindu.co.in

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