The Government on Tuesday painted a sombre picture of the economy, holding out the hope of another interest rate cut while peering into the prospect of national income growth slipping below 7 per cent. Worse, the fiscal deficit is yawning, curbing the government’s elbowroom to spend its way out of the slowdown.
“It is difficult to make a precise forecast about growth prospects for the whole year at this stage because of uncertainty, though the expectation is that it would be in the range of 7 to 8 per cent,” the mid-year review of the economy that was tabled in Parliament on Tuesday stated.
“We have to be prepared, however, for growth to be around 7 per cent in 2008-09 as a whole.”
Gross domestic product (GDP) has grown by 7.8 per cent during the first six months of current fiscal year, but the review cautioned that it will be “significantly slower” in the second half as the impact of slower export growth and weaker domestic demand, including a possible dampening of private investment, begin to be felt.
India’s industrial output in October contracted by 0.4 per cent, exports plunged by 12 per cent, while excise duty collections — the tax imposed as products travel from the factory to the final retail selling point — fell by 15 per cent in November, mirroring the seriousness of the slowdown.
In a mini-budget of sorts, the government had announced a series of measures in the first package on December 7 that included an across-the-board cut in the central value added tax (Cenvat or the key indirect tax imposed at various stages of the manufacturing process).
Chief economic advisor Arvind Virmani said fiscal deficit for 2008-09 could exceed 5 per cent due to the extra spending reflecting widening disparity between current expenditure and revenues earned by the government.
The International Monetary Fund has projected that India's GDP growth is likely to slow down to 6.3 per cent in 2009, while the Reserve Bank of India has revised GDP growth forecast for 2008-09 to a range of 7.5-8.0 per cent.