Mumbai: The government may be bullish about economic growth next fiscal, but leading economists are not as confident as North Block mandarins about India’s ability to even maintain the current rate, given domestic and global headwinds facing the country.
The Economic Survey tabled in Parliament by finance minister Pranab Mukherjee on 25 February had forecast over 9% growth next fiscal and pegged the current year growth at 8.6%.
Economists at the leading rating and research agencies maintained that achieving the higher projected growth trajectory looks unlikely, given the medium-term macroeconomic trends.
Ashwin Parekh of Ernst & Young said, “The 9% plus growth projection looks difficult to achieve. The past four months have completely changed the macro-economic conditions not only for us, but for the entire global economy.”
Parekh said if the oil crisis arising from the Libyan political crisis is contained within the next one month, it may not pose too big a challenge to the domestic economy, but if it extends beyond two months, it will definitely pose a greater challenge.
“But as of now we have no clarity on when the crisis will end,” he said.
The bullishness might have come from the assumption that the present crisis will be over sooner than anticipated and will bring down crude prices to around $85 a barrel, he said.
Deloitte principal economist Shanto Ghosh said while projecting a higher GDP rate, the ministry has glossed over many issues. Dependence on the services sector for growth without adequate focus on skill development is risky, he said.
”Risks to the exchange rate arising from volatile FII flows impacting current account deficit is also understated. Finally, while the report speaks on social sector priorities and inclusive growth, it fails to provide a clear roadmap on how this can be achieved,” pointed out Ghosh.
Crisil chief economist D. K. Joshi is of the opinion that the prevailing high inflationary headwinds and external vulnerabilities should make it easy to discern that the projected growth rate will not be easy to clock.
“My sense is that achieving 9% growth will be challenging considering the high inflationary trends and external vulnerabilities,” he said.
Likewise, Fitch Ratings’ D. K. Pant said, “There are many obstacles to this high growth projection. After factoring in the impact of the evolving global and domestic scenarios, we have, in fact, brought down our GDP forecast to 8.5% from 8.7% for the next fiscal.”
Parekh of E&Y opined that any fillip to public spending will only fuel inflation and push up interest rates, which in turn will hurt growth as it will curb consumption.
Parekh further noted that investment has been coming down since the past few months, barring sectors like cement and finished steel, in anticipation of increased demand.
Care Rating associate economist Samruddha Paradkar also said the projected growth looks difficult to achieve. “There are many headwinds facing the economy. Investment is coming down, interest rates are heading north and on top of it the government is serious to bring down deficit by rolling back the fiscal stimulus which will impact manufacturing,” Paradkar said.
Care Rating sees the economic expansion at 8.6-8.8%, she added.