UPDATE: India Survey Shows Economic Downturn Nearly Over
-- Survey projects economic growth will accelerate to 6.1%-6.7% next fiscal year
-- Says easing inflation to provide room for rate cuts
-- Reiterates government to stick to fiscal deficit targets
-- Forecasts inflation between 6.2% and 6.6% by end-March
(Adds comments from survey, details)
By Mukesh Jagota, Prasanta Sahu and Anant Vijay Kala
NEW DELHI--India's economy has turned the corner and growth is likely to rise to well over 6% in the next fiscal year
as inflation gradually slows and provides room to ease monetary policy, the government said Wednesday.
"The downturn is more or less over and the economy is looking up," the government said in a survey presented in
parliament a day before the federal budget announcement.
Also, in a sign that New Delhi intends to continue to push ahead with a recent drive to set its finances in order, it
reiterated that it would stick to its fiscal deficit target.
The economic survey projects India's economy to grow between 6.1% and 6.7% in the year that begins April 1, gathering
pace from an expected 5% expansion in the current fiscal year through March.
"India's situation is difficult, but steps have been taken to bring the macroeconomy back into balance and growth on
track. What is important is to recognize that a lot needs to be done and the slowdown is a wake-up call for increasing
the pace of actions and reforms," said the survey, which is a review of the economy conducted by the finance ministry.
It said removing hurdles to investments, combating inflation with supply-side measures and reducing borrowing costs
would help improve growth.
Since taking office in September, Finance Minister P. Chidambaram has fast-tracked the government's reforms agenda.
New Delhi has eased foreign-investment restrictions in sectors such as retail and civil aviation and raised discounted
prices of diesel twice to cut its subsidy burden.
Also, Mr. Chidambaram has on several occasions assured investors that the government would stick to its fiscal
roadmap, which aims to narrow the fiscal deficit to 5.3% of gross domestic product this fiscal year from 5.7% last year,
and to 3% by March 2017.
The measures have helped revive investor confidence and eased fears that the Congress party-led federal government may
resort to populist spending to better its chances in state elections this year and in federal polls in 2014.
The slowdown in India's economy over the past two years is in sharp contrast to the blazing pace of growth after the
global financial crisis till the fiscal year ended March 2011, when its output grew by more than 8% annually.
However, the withdrawal of fiscal stimulus measures -- which helped the economy shrug off the effects of the 2008
crisis -- have hurt growth, together with high inflation and inadequate infrastructure, the survey said Wednesday.
It added that inflation is now on the way down, which will likely encourage the Reserve Bank of India to shift to a
more accommodative monetary policy and help support growth.
The survey expects inflation to ease to between 6.2% and 6.6% by the end of March and moderate further in the months
The government's most recent data showed inflation was at 6.62% in January.
The survey said that risks to India's economic recovery persist due to the fragile global economy. The country's wide
current account deficit that is largely being driven by rising imports, especially of crude oil and gold, is also a risk
to India's financial stability.
"As the room to increase exports in the short run is limited, the main focus has to be on curbing imports, mainly by
making oil prices more market-determined and curbing imports of gold," the survey said.
India's current account deficit widened to a record 5.4% of GDP in the July-September quarter. This, together with the
large fiscal deficit, has constrained room for monetary easing.
The government as well as industry lobby groups have been urging the RBI to lower interest rates. But the central bank
has been cautious so far, fearing that aggressive easing could revive inflationary pressures.
On Jan. 29, the central bank cut its key lending rate by a quarter of a percentage point -- the first decrease since
April 2012 and only the second cut in about four years.
Write to Write to Mukesh Jagota at email@example.com, Prasanta Sahu at firstname.lastname@example.org and Anant
Vijay Kala at email@example.com
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