India's Growth during Fiscal 2011-12 to Slow Down To 7.5 Pct: Mid-Year Review

NEW DELHI (NNN-Bernama) -- Amid worsening global scenario and rising prices, the Indian government has lowered the country's growth projection for the current 2011-12 fiscal to 7.25-7.75 per cent and hoped that inflation would moderate to 7 per cent by March-end, Press Trust of India (PTI) reported.

"The sharply deteriorating global economic environment has had a dampening effect on India. Compounded with some domestic factors, the global situation has led to a clear slowdown in the growth rate of the Indian economy ...” said the mid-year report card of the economy tabled by Finance Minister Pranab Mukherjee in Parliament on Friday.

The Mid-Year Analysis 2011-12 has lowered the growth projection for the current fiscal to 7.5 per cent (plus/minus 0.25 per cent) from the 9 per cent projected in February. Economy grew by 8.5 per cent in 2010-11 ended March 31,

2011.

On the prospects for the next (2012-13) fiscal, the analysis said, "the outlook remains mixed". However, given the country's strong fundamentals, it would be possible to get back to the long-run target of 9 per cent.

The analysis further said that the overall inflation is likely to decline from this month and moderate to 7 per cent by March-end. The headline inflation was 9.73 per cent in October.

On the fiscal deficit target of 4.6 per cent of the GDP in 2011-12, the government said it will not be easy to meet the target.

"...adhering to the fiscal deficit target of 4.6 per cent of GDP is a major challenge," it said adding the government will find it difficult to raise Rupees 400 billion (about US$8.0 billion) from disinvestment and Rs 130 billion (about US$2.6 bn) from telecom spectrum auction.

Uncertainty on disinvestment receipts and a likely higher subsidy requirement do make it a challenging task to adhere to the overall fiscal deficit target, the Mid-Year Review said, adding that the government isdetermined to keep overshooting of the fiscal deficit target as minimal as possible.

The analysis has also raised concerns over rising expenditure on account of major subsidiesincluding oil, food and fertiliser besides higher interest payment.

"Higher growth in expenditure (on major subsidies, interest payment and defence) explains structural problem of government finances which needs to be addressed through policy initiative," it said.

The government, however, expect some revival next year, but the outlook remains mixed. "If Europe slides into proper recession, with all the attendant financial contagion that will no doubt affect other nations, the entire world economy will slowdown and we could also be impacted," it said.

The analysis maintains that with India's strong fundamentals, and if Europe and the US remain stable, it should be possible for the country to achieve 9 per cent growth in the long run.

It further said "maintaining the growth momentum in the economy with price stability is one of the biggest policy challenges that India is facing in recent times".

On the tax collection, the government said that although the budget target appears achievable, there are "both upside and downside risks" associated with the prevailing uncertainties in the global economy.

As for indirect taxes, the trend so far has been better even after significant duty reduction for crude and petroleum products during the year.

There is, however, problem in excise collection mainly on account of moderation in growth of manufacturing sector. ---NNN-BERNAMA