FY10 growth seen more than 7.2%: PM adviser

The economy is likely to grow more than 7.2% in the current fiscal year ending March, C Rangarajan, the Prime Minister's Economic Adviser says. "We expect a GDP growth of 8.2% and 9% in FY11 and FY12, respectively."

On February 17, Finance Minister Pranab Mukherjee says the country could end FY10 with a GDP growth rate of 7.5% based on the IIP (industrial output) figures for December 2009.  "Perhaps we will be able to reach 8% plus in the next fiscal."

Asia's third largest economy has been showing signs of a strong revival after industrial output in December surged 16.8% on year, its fastest pace on record.

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On fiscal deficit:
Rangarajan says fiscal imbalance is a matter of concern and the process of consolidation must begin in the next financial year itself. The council stated that inflation was a down-side risk to its projected growth rate of at least 8.2% in 2010-11, and any policy action would have to factor in the "significant" danger of high food inflation spreading into broader prices.

India is seen growing at more than 7.2% in FY10, largely as stimulus measures helped boost the economy in the aftermath of the global financial crisis. "Although the large deficits this year and the last year did have a counter-cyclical impact, it is necessary to initiate measures towards fiscal consolidation in the forthcoming budget," the council said in its review of FY10.

The PM's Economic Advisor expects current account deficit at 2.2% of GDP in FY10. "We see a consolidated fiscal deficit of 10.3%, capital flows of Rs 48.5 billion. and FY10 trade deficit at USD 128 billion."

He sees a possible reduction in fiscal deficit by 1-1.5% in FY11 and thinks it is feasible to reduce the expenditure-GDP ratio by 1%.

On government borrowing:
The government's market borrowing in the next fiscal year is likely to be around or slightly lower than Rs 4.51 trillion (USD 97 billion) in the current fiscal year, Rangarajan says. "It (borrowing) may be around that level or slightly lower than that."

On inflation:
He sees wholesale price inflation at around 8.5% by the end of March.

Rising inflation, particularly that of food prices, is a major challenge for the policymakers. The government's measures to tame rising inflation will take some time to make an impact, Mukherjee explained.

India's headline inflation in January rose 8.56%, vaulting above the central bank's end-March inflation forecast of 8.5%. "I do hope over a period of few months it will be possible to have the moderate rate of inflation," the Finance Minister added.

Farm Minister Sharad Pawar had also told reporters on the sidelines of a conference on Wednesday that food prices in India, which rose an annual 18% in January, have started falling and will dip further next month.

On GST rollout:
Rangarajan feels the April 1 GST rollout deadline is not realistic.

Below are some of the key forecasts and recommendations by the panel and its chief.

GROWTH
- More than 7.2% economic growth in FY10
- At least 8.2 % growth seen in FY11
- Growth seen at 9% in FY12
- Downside risks: deteriorating financial stability, rising commodity prices, poor infrastructure investment, and inflation
- Upside to estimates: faster improvement in export demand, better infrastructure and governance

INFLATION
- Wholesale price inflation seen at 8.5% by end-March
- Food inflation seen moderating in the next 2-3 months
- Significant danger of high food inflation spreading to broader prices.

FISCAL DEFICIT
- Fiscal imbalance is a matter of concern
- Consolidated (federal and state) fiscal deficit seen at 10.3% of GDP in FY10
- Revenue deficit seen at 4.8% of GDP in FY10
- Government market borrowing in FY11 seen around or slightly lower than current fiscal year's (April-March) level.

RECOMMENDATIONS
- Fiscal consolidation must start in the next financial year
- "Although the large deficits this (financial) year and the last year did have a counter-cyclical impact, it is necessary to initiate measures towards fiscal consolidation in the forthcoming budget."
- Correctives must focus on adjusting expenditure
- Cuts in deficit must not reduce capital expenditure
- Government can budget for a 1-1.5% cut in fiscal deficit for FY11 without hurting growth
- Urgent steps needed to import white sugar to make up for 3-5 million tonne shortfall.