India Ratings says that the country's FY14 GDP of 4.9 percent is the rock-bottom level. It also sees the fiscal deficit to be around 5.2 percent of the GDP and is wary of reduced planned expenses by government to put a cap on this deficit.
Economists peg India's gross domestic product (GDP) at 4.9 percent for FY14. Devendra Pant, chief economist at India Ratings says that the GDP target is the worst the country could grow at. On a sectoral basis, he expects agriculture to grow at 4.5 percent due to some impact of cyclone Phailin, while services sector may be lower in the fiscal than FY13. Industrial growth may find some support on the back of upcoming festive season, he tells CNBC-TV18.
Pant sees oil subsidies to be in the range of Rs 9,000-10,000 crore unless the government undertook drastic measures to rationalise fuel prices. Food subsidies may see some slippage and fertiliser grant is expected not move up. Based on all these, he sets the fiscal deficit target at 5.2 percent. However, he warns against the curb in planned expenditure to reduce deficits as it may hurt growth in the future.
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Below is the edited transcript of his interview to CNBC-TV18.
Q: What is your call for FY14? Do you think your prediction of 4.9 percent has some downside risk or is this is the worst case scenario?
A: We are looking at it as a worst case scenario. The industry is at 2.2 percent which will be worse than what we had witnessed in FY13. We are looking at three months of consecutive double digit growth in exports. It will give some push to manufacturing sector growth.
We are projecting a 4.5 percent growth in agriculture. There is some impact on agricultural outlook due to the recent cyclone in the eastern belt; Orissa and Andhra Pradesh. Had it not been the case, some uptick could have been seen in the agriculture.
Services growth is estimated to be slightly lower than FY13. As of now, these can be looked at the conservative estimates depending on how things play out from here.
With festival demand and the kharif harvest hitting the market, there will be some support to industrial sector growth. We believe this is a lower bond for the FY14.
Q: What is your quarterly projection for the gross domestic product (GDP)?
A: We haven’t yet started doing the quarterly projection. This is the maiden economic outlook. Going forward, if you are looking at Q2, it will not be very good, but we had seen the situation in the industrial growth, how it is.
There is hardly any agriculture output, which will give support to the overall GDP growth. The way net exports of services numbers are playing out, they show USD 6 billion month after month and at least June to August USD 6 billion worth of net services exports. We may be looking at a number slightly lower than Q1.
Q: You are expecting a 5.2 percent estimate for fiscal deficit in FY14. What is this predicated on? Could we even worsen beyond that?
A: This is based on two sides. One is on the basis of industrial sector’s performance. It is on the revenue side. Basically on the expenditure side, look at it how the subsidies will be panning out.
Unless drastic measures are taken of rationalizing the prices of three controlled petroleum products or global crude prices fall drastically and rupee appreciates sharply, then the bare minimum of slippage on oil subsidy will be something closer to Rs 9,000-10,000 crore that is the bare minimum. It can go even higher.
On fertiliser subsidy, at least on the imported fertiliser, we are more or less on track. Global fertiliser prices have fallen significantly in the first half. Apparently, there is no reason to believe that they will move up very drastically in the remaining part of this year. On food, there maybe minor slippages.
Government sets in a target of more than 55,000 crore, Rs 40,000 crore pure divestment and remaining Rs 15,000 crore is selling residual stake in SUUTI and other entities, which will not be a major problem if they will be able to realize money from that. But, looking at Rs 40,000 pure divestment looks a bit tricky.
These go in to the 5.2 percent calculation of fiscal deficit. If the deficit is controlled like last year by controlling the planned capital expenditure, it will have adverse impact on economic growth in medium to long run. In most of the sectors, the public sector investment trouts in the private sector investment and agriculture, infrastructure services and infrastructure sector.
If you cut down on the planned capital expenditure, then we are looking at reducing the potential growth of the economy in next two-five years.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.