New Delhi: The government on Friday lowered its GDP forecast for 2015-16 to 7-7.5 per cent, which is significantly lower from 8.1-8.5 per cent estimated in February due to weak global demand and lower agriculture output, according to Mid-Year Economic Analysis 2015-16 tabled in the Parliament on Friday.
It warned that unless supply side reforms provide an impetus to growth and if the government struck to fiscal consolidation path, GDP growth next fiscal is not likely to be “significantly greater than growth this year”.
It said that the government’s commitment to further bring down the fiscal deficit next fiscal by 0.4 per cent needs to re-assessed so that pubic spending could fill in for weak private investments.
“Recent international experience from Europe and elsewhere has shown that fiscal multipliers tend to be large especially at a time of contracting nominal GDP,” said the report.
The Mid-Year Economic Analysis projected that Budget deficit target will be met and retail inflation is likely to be within the RBI’s target of about six per cent. It said that the effect of the floods in Tamil Nadu will be to reduce GDP but not substantially.
“The fiscal deficit target of 3.9 per cent this year will be steadfastly met... 3.5 per cent next year looks more challenging (because of higher outgo on central staff wages due to implementation of the Seventh Pay Commission and defence pensions),” said chief economic advisor Arvind Subramanian who authored the Mid-Year Economic Analysis.
Mr Subramanian said the future outlook is challenging as private investments remain weak and government expenditure due to increased spending on wages and pension is set to increase.
“The economy is recovering but it’s hard to be very definitive about the strength and breadth of the recovery for two reasons — economy is sending mixed signal and second there is some uncertainty how to interpret GDP data,” he said.
On the signals, the chief economic advisor said that while personal consumer loans are growing rapidly at 15 per cent, loans to industry are growing slowly. Also, while collection of indirect taxes is very high, direct taxes were not very buoyant. Sectorally too, while coal, steel, aluminium are not showing much growth, electricity generation and car sales are rising. “A lot is going on in the economy and different things are happening in different sectors, which makes interpreting it difficult,” he said.
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