The Hindu Business Line : Mid-year review report forecasts 7-8% growth

New Delhi, Dec. 23 Given the global uncertainties, it would be very difficult at this juncture to gauge the efficacy of the fiscal stimulus package that had been unveiled in the recent weeks, according to the Chief Economic Advisor in the Finance Ministry, Dr Arvind Virmani.

Speaking to reporters soon after the mid-year review of the economy was tabled in Lok Sabha, Dr Virmani also said that annual inflation, which fell below 7 per cent in early December, was “under control” and could decline further to 4-5 per cent levels by end-March 2009. The mid-year review report was tabled in Lok Sabha by the Minister of State for Finance, Mr S.S. Palanimanickam.

The review highlighted that it would be difficult to make a precise forecast about growth prospects for the whole year at this stage because of uncertainty, though the expectation was that growth would be in the range of 7-8 per cent. However, the mid-year review has sought to prepare the country for growth rate closer to 7 per cent and above.

“We should be prepared for growth in 2008-09 as a whole to be around 7 per cent,” said Dr Virmani, reading out to reporters from the mid-year review report for 2008-09.

Crude price fall

Dr Virmani also said that the sharp fall in global crude oil prices would create more “fiscal space” in the second half of the fiscal year ended March 31, 2009. On fiscal deficit, he noted that it would increase substantially on account of the fiscal stimulus package measures. He estimated the Centre’s fiscal deficit for 2008-09 to be over 5 per cent of GDP, which is an additional 2 per cent over the FRBM target level of 3 per cent, if this is taken as the benchmark.

“Indeed, the additional fiscal stimulus for 2008-09 may be of the order of 2 per cent of GDP,” said the mid-year review.

On the global slowdown, the report has said that the deepening of the crisis post August 2008 and subsequent deleveraging and risk aversion in the global markets has directly affected the Indian equity and the foreign exchange markets. Indirectly, the money, debt and credit markets have also been impacted.

“However, so far the macroeconomic impact of the global financial turmoil has been relatively muted due to the overall strength of domestic demand and the predominantly domestic nature of financing of investment, nevertheless some slow down is inevitable. The challenge now is to get the right policy mix so as to ensure that the economy is able to minimise the dislocation to its growth trend,” said the report.

On the impact of recent monetary measures, Dr Virmani noted that more time had to be given for these measures to work through the economy. “We are so impatient that we expect monetary actions to take effect in one week.. one month. Give it some time,” he said.