
The Economic Advisory Council to the PM recently
released the document on the ‘Economic Outlook for 2013-14’, essentially for
the remaining 2nd half of the current financial year. Some of India’s
near term challenges include slowing growth, fiscal deficit concerns and
moderation in capital flows. The report does, however point out to positives as
well – like softening in inflation pressures and potential curbing of the
current account deficit.
So here are the five takeaways:
#1. Growth remains weak: It is a great agricultural season, but
that alone does not robust growth make. The PMEAC expects GDP to grow by a
recessionary 5.3% yoy. This is expected to be largely on account of slowing
down in services activity – the growth is expected to come off to 6.6% from
7.1% - which is over half of the Indian economy.
#2. Fiscal challenge: The report points out to the fact that in the
first 4 months of 2013-14 itself, the fiscal deficit reached 63% of budget
estimates. With slowing growth and government revenues, a 4.9% fiscal deficit
to GDP ratio could be hard to reach.
#3. Slowing net capital inflows: Net capital inflows during 2013-14
are expected to US $ 61 billion, down from US $ 89 billion during 2012-13.
While this is a significant decline, some the reasons for it can be found in
the fact that in 2012-13 we saw the second highest flows ever. In terms of the
components, the decline is expected largely due to weak FII flows, even as FDI
flows improve from the previous year and slowing down in external commercial
borrowings.
#4. Inflation to soften: Headline inflation numbers (WPI) have already
shown softening during the first half of 2013-14, and the PMEAC expects that
with a good agricultural season too, there should be continued moderating
impact on inflation. WPI is expected to be at 5.5% at the end of the financial
year.
#5. Come off in current account deficit: The CAD has been a serious
source of concern in the recent past, but the PMEAC is optimistic about it. It
estimates that not only will CAD decline in proportion of GDP – to 3.8% of GDP
from 4.8% during the previous year, but actually decline in absolute terms as
well to US $ 70 bn from US $ 88 bn during the previous year.
In balance, the outlook is
realistic about soft growth prospects, given the recent trends and its
implications for the fisc, but the external sector is looking somewhat more
comfortable in the second half of the year even with slowing capital flows and
so is the remaining part of the year for inflation.
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