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Growth gloom hangs over budget making

business Updated: Dec 26, 2011 01:01 IST
HT Correspondent

As storm cloulds darken over the world’s second fastest growing major economy, finance minister Pranab Mukherjee will kick-start formal consultations in run-up to the preparation of next year’s budget with a meeting with a farmers’ group on January 11.

Mukherjee and his team, which successfully steered the country through the global economy’s worst crisis in eight decades, is perhaps facing a bigger challenge: controlling prices without hurting consumption demand, and keeping government expenditure within manageable limits.http://www.hindustantimes.com/Images/HTEditImages/Images/26-12-buss-1.jpg

Mukherjee will also have to pepper Budget 2012-13 with more than a dash of populism to boost the government’s sagging political stock, hit by a series of corruption scandals and a policy standstill.

The tug-of-war between sliding growth and rising inflation has severely hurt consumption demand, the edifice of the India growth story.

The growth of India’s gross domestic product (GDP) — or the aggregate of all entities’ income in the economy — slumped to 6.9% during the second quarter from 8.4% a year ago, confirming the spread of the slowdown.

“We are having multiple problems... slow growth of Europe and America... problems within the country and outside the country as well. We shall have to try to face the situation and to see what best we can do in this situation,” a senior government official said.

Indian firms are feeling increasingly squeezed by costlier credit at home, halting investment activity.

Industry groups have ratcheted up their demands for a fiscal stimulus in wake of a sharp drop in investments.

The latest GDP growth data showed a significant slowdown in investment activity over the last few months. Gross fixed capital formation (GFCF) — a proxy to measure fresh investments by companies — actually fell to R584,236 crore during July to September, dropping by about R1,000 crore as compared to the previous three months.

Industrial output in October contracted by 5.1 %.

“A significant pull down in investments is apparent,” Chandrajit Banerjee, director-general, CII.