The Indian government projected the weakest economic growth in a decade owing to slower growth in the manufacturing, services and farm sectors, underlining the urgency to implement reforms.
Gross domestic product is set to grow 5 percent in fiscal 2013, preliminary estimates from the Central Statistical Office revealed Thursday. The growth rate marks the worst since 2002-2003, when the economy grew 4 percent, and was also slower than the 6.2 percent GDP growth estimated for 2012.
Earlier, the government had forecast fiscal year 2013 GDP growth of 5.7 percent to 5.9 percent.
The government projects a 5.9 percent expansion for the construction sector. At the same time, the manufacturing and agricultural sectors are estimated to grow 1.9 percent and 1.8 percent, respectively. Meanwhile, a meager 0.4 percent rise is projected for the mining and quarrying sector.
The International Monetary Fund said yesterday that India's growth will slow notably to 5.4 percent this fiscal before rising to 6 percent in 2013-14. The economy has the potential to rebound in the near term if the government implements more reforms, the lender added.
Last week, the Reserve Bank of India cut its growth forecast to 5.5 percent from 5.8 percent. The bank faces policy dilemma amid above 7 percent inflation and subdued growth.
The bank reduced its interest rates by a quarter point for the first time in nine months on January 29. The bank shifted its stance to address growth risks, but signaled limited scope for aggressive reductions, given the higher inflation level.
The IMF advised the RBI to maintain the current interest rates until inflation is clearly on a downward trend. Further, it called on the government to focus on fiscal consolidation. The lender stressed on the rationalization of fuel and fertilizer subsidies and also underscored the need to raise tax revenues to pre-crisis levels.
The government recently opened up retail and aviation sectors to foreign investment and plans to loosen control on the pension and insurance sectors. The Congress party-led government raised the cap on subsidized cooking cylinders due to the public outrage over reforms initiated last September.
To avert a threat of rating downgrade, the government targets to cut its budget deficit to 4.8 percent in 2013-14, from an estimated 5.3 percent in the current year.
The downward revision to the GDP estimates adds pressure on Finance Minister Palaniappan Chidambaram to frame a growth-oriented budget for 2013-14, which is set to be announced on February 28.
by RTT Staff Writer
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