FEARS OF GROWTH RATE SLIDING BELOW 5 PER CENT COMING TRUE

he fear that Indias economic growth rate will slip below 5 per

cent in the current financial year, the efforts of the government to boost it notwithstanding, appears to be coming true. Several leading think tanks are of the opinion that the wobbling economy will not touch the five per cent growth mark on account of host of factors including subdued global recovery, poor demand of manufactured goods, elevated inflation, volatile rupee and most importantly negative investor sentiments. Although the Finance Ministry in its latest quarterly review of the economy has suggested that the growth rate in the current fiscal will improve to 5.5 per cent from decades low of 5 per cent recorded a year ago, the projection does not plausible. The views of the Finance Ministry has to be taken with a pinch of salt as they are not in tandem with the projections of other respectable entities like the Asian Development Bank (ADB), International Monetary Fund (IMF) and other secular experts. Moreover, the first quarter of the current fiscal recorded a dismal growth rate of 4.4 per cent. If the country has to achieve a growth rate of 5.5 per cent, the economic expansion will need to be much stronger in the remaining part of the financial year. The possibility of a dramatic turnaround does not seem plausible given the fact that most of the sectors with the exception of agriculture have yet to show any worthwhile improvement. Unless the demand of industrial product goes up, the likelihood of 5.5 per cent growth will continue to be a forlorn hope. Coming out with the most optimistic projection, Finance Ministry in its Quarterly Review 2013-14 (April-June) said the economic growth in the current fiscal would improve to 5.5 per cent on back of a likely pick up in agricultural output, mainly on account of good monsoon. According to an official release: "Following three quarters of sub 5 per cent growth, growth is expected to pick up from second quarter of 2013-14 resulting in full year growth of around 5.5 per cent current macro trends indicate that a combination of global and domestic developments is likely to result in a shallow 'U' shaped recovery in 2013-14." As a word of caution, the Finance Ministry document added: The improvement in the growth prospects for agriculture sector is likely to be offset by weak trends in other sectors. While current trends in industry are weak, recent project clearances and the pickup in coal production in recent months bodes well for mining and manufacturing activity." It may be noted that the Economic Survey presented by Finance Minister P Chidambaram in Parliament in the budget session of Parliament in February talked about a growth rate of 6.1 to 6.7 per

cent in 2013-14. This of course is a not possible given the state of economy in the initial period of the current fiscal. In the backdrop of the global and domestic developments, the Finance Ministry itself lowered the growth forecast for the fiscal. Much has happened since February prompting the other think tanks to lower Indias growth forecast for the current financial year. In its latest World Economic Outlook, the International Monetary Fund (IMF) lowered its projection of India's growth rate to 3.75 per cent in 2013 from 5.7 per cent estimated earlier, on account of poor demand and weak manufacturing and services sector performance. It said: "In India, growth in fiscal year 2013 is expected to be around 3.75 per cent, with strong agriculture production offset by lackluster activity in manufacturing and services, and monetary tightening adversely affecting domestic demandfor fiscal year 2014, growth is projected to accelerate somewhat to 5 per cent, helped by an easing of supply bottlenecks and strengthening of exports." In April, the IMF had projected India's GDP growth rate at 5.7 per cent in 2013 and at 6.2 per cent the following year, indicating the country's declining growth had bottomed out. Unfortunately that had not happened prompting IMF to revise its projections. ADB in its Asian Development Outlook 2013 too had lowered India's growth projection for 2013-14 to 4.7 per cent from 6 per cent estimated in April, saying the recent rupee depreciation and capital outflows could adversely impact the country's economy. "With gross domestic product in the first quarter of (2013-14) expanding at its slowest pace since the global financial crisis, ADB revised down its growth forecast to 4.7 per cent from 6 per cent projected in April," it said. In 2014-15 there could be some moderate improvement, with growth estimated at 5.7 per cent, but it would be below the earlier forecast of 6.5 per cent, the ADB report added. Among others, Prime Ministers Economic Advisory Council (PMEAC) too had lowered the growth forecast for the current fiscal to 5.3 per cent. It had April projected 6.4 per cent growth for Indian economy for current financial year. PMEAC chairman C Rangarajan had suggested host of measures including further liberalisation of FDI norms to boost sagging economic growth. The onus of taking appropriate action will be on the government. The Reserve Bank in its first quarterly review of monetary policy in July had lowered its growth projection for the current fiscal to 5.5 per cent from its earlier estimate of 5.7 per cent. It too had asked the government to undertake policy measures to improve investment climate. Although the new RBI Governor Raghuram Rajan recently said that there was no reason to dispute the government's estimate of

5-5.5 per cent economic growth for the current fiscal year, the central bank is expected to update its growth forecast during the second quarterly monetary review which is scheduled to be announced on October 29. In all probability the RBI will take a realistic view of the growth and will lower the growth projection. Independent experts, however, do not see eye to eye with either the Finance Ministry or Rangarajan or Raghuram Rajan as far as growth forecast for the current fiscal is concerned. They feel that growth projection for 2013-14 in excess of 5 per cent in the current scenario is over optimistic. "Our projection is a little lower, we see growth at 4.8 per cent in current fiscal as investments will not pick up significantly," D K Joshi, Chief Economist at Crisil had opined. "I do not agree with the PMEAC's projection of FY 14 growth at 5.3 per cent. I see growth at 4.3 per cent in current fiscal. I don't see a recovery in the second half as investment is down and there are no signs of it coming up, services sector is also down," Rajiv Kumar, Senior Fellow at the Centre for Policy Research had said. The government functionaries including Planning Commission Deputy chairman Montek Singh Ahluwalia and Economic Affairs Secretary Arvind Mayaram, however, maintain that growth will pick in the second half of the current fiscal and the growth rate will not fall below 5 per cent. Although the actual figures will only be known later, there is no denying that the government will have to work overtime to improve upon the decades low growth of 5 per cent recorded in the last financial year.