The Economic Survey says the economic downturn is 'more or less over'. It has pegged FY14 growth at 6.1-6.7%. It emphasises on the need to curb the twin deficits. Chief Economic Advisor Raghuram Rajan says India's situation difficult but not impossible.
On the positive side, the Survey view the medium term fiscal consolidation plan as credible, and the Government will be able to achieve its fiscal deficit target of 5.3 percent for the current year. It sees mixed signals of industrial growth having bottomed out, and that GDP is likely to grow 6.1-6.7 percent next year. Wholesale price inflation is seen between 6.2-6.7 percent by March this year, and that lower inflation would give more elbow room for the RBI to cut interest rates.
But there are a host of concerns, most prominent one being the widening trade deficit and consequently the current account deficit, which is seen at 4.6 percent for this fiscal. Revenue collection target for FY13 is likely to be significantly below target, and industry growth is still vulnerable to local and global factors. And while there is an urgent need to cut down on subsidies, food subsidy bill is set to rise because of the Food Security Bill.
The Survey sees oil subsidies as a key fiscal risk, and that the government needs to raise diesel and LPG prices in line with global rates. On the flipside, higher diesel prices could push up inflation.
There is limited room to grow exports, given adverse local and global factors. That being the case, the only way current account deficit can be kept in check is by reducing imports of gold and oil.
"Given soaring energy and transportation needs, since there seems to be little we can do to temper oil imports, gold is the component that needs to be contained to bring the CAD back to a comfort zone,” the Survey says.
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