Economy to gather pace
India's economic growth will gather speed over the next two years, finance minister Pranab Mukherjee said on Friday, but question marks loomed over the government's ability to push through reforms in critical areas to spur investments.india Updated: Mar 17, 2012 07:49 IST
India's economic growth will gather speed over the next two years, finance minister Pranab Mukherjee said on Friday, but question marks loomed over the government's ability to push through reforms in critical areas to spur investments.
The Budget is based on a real gross domestic product (GDP) growth assumption of 7.6% and 9% in the later years.
"Taking a bird's eye view of the entire economy and keeping in mind the difficult global environment, I expect India's GDP growth in 2012-13 to be 7.6%," said Mukherjee.
The government assumes 19.5% jump in gross tax revenue led by 29.1% gain in excise duty. The latter appears unrealistic despite the 2ppt increase in excise duty and assumes a strong upturn in industrial activity.
"It may be mentioned that these projections are contingent on conditions like normal rainfall and reasonably stable prices of petroleum products among others," the finance ministry said in its medium term fiscal policy statement.
One potential comfort area that the Budget offers is that the assumption of growth in capital spending is 30.6% in 2012-13 after being flat last year.
Economists said that the expected growth will warrant better policy coordination. Any slippage in this spending could cushion the fiscal slippage.
"No one expected anything major in the Budget but even then it managed to disappoint in some macro areas," said Rajeev Malik, senior economist at broking and research firm CLSA.
"The recent unexpected bold move to raise railway passenger fares for the first time in nearly a decade hinted that perhaps the government finally got it. But, the Budget offered little to confirm that. It is highly likely that the actual deficit will be higher than the government's target."
The government has also budgeted to earn Rs 40,000 crore by selling telecom spectrum vacated by 122 licences following SC ruling last month.
"Expectations were running low after the dismal performance of the ruling Congress government in recent state elections and the budget was a litmus test on the government's commitment to judicious economic policies," said Sonal Varma, economist, Nomura, research firm.
"Choosing the latter is prudent, in our view."