Given the continuing weakness in private investments, India needs to keep the tempo of public investments going, even accelerate them to bolster economic growth, the Mid-Year Economic Analysis report has suggested.

Ramping up public investments may be necessary to “fill-in for and indeed crowd-in private investment”, it said.

The report, tabled in Parliament on Friday, pegged the economic growth for 2015-16 at 7-7.5 per cent, much lower than the 8.1-8.5 per cent projected in February in the Economic Survey.

Highlighting the mixed signals in the economy, Chief Economic Advisor Arvind Subramanian said that India was both a “haven of stability and an outpost of opportunity”.

“The economy is recovering. But it is hard to be definitive about the strength and breadth of the recovery,” he added.

Unless supply side reforms are initiated to restart the private investment cycle and provide an impetus to growth, GDP growth for the next fiscal year is not likely to be significantly greater than the current year, the report added.

To sustain the growth momentum, the Centre should “re-assess” its commitment to further fiscal consolidation of 0.4 per cent of the GDP, the Finance Ministry document said.

The Centre had pegged the fiscal deficit target for 2016-17 at 3.5 per cent of the GDP, the same as the current fiscal year’s target.

The report has urged the Centre to loosen its purse strings to ramp up public investment, drive growth and not mind slipping from its earlier announced fiscal deficit target for 2016-17.

Meanwhile, policymakers said that the GDP growth projection for this fiscal year was being pruned largely due to the weakness in exports (because of the declining world markets) and private investment. Despite the weakness in exports and private investments, the Indian economy is “doing remarkably well” this fiscal year, thanks only to private consumption and government investment, the report highlighted.

“For an economy that is powered only by private consumption and government investment, it is doing remarkably well. The difference with 2014-15 is that the decline in exports has been offset by higher consumption and public investment”, the report said.

Jayant Sinha, Minister of State for Finance, sees the country’s exports improving next year on the back of a recovery in the US economy.

Sinha expressed confidence that the fiscal deficit target of 3.9 per cent would be met for the current fiscal year.

Nominal GDP, CPI inflation For the current year, the Mid-year analysis report has estimated nominal GDP growth to be 8.2 per cent.

This estimate implies that nominal growth in the second half will be greater than that in the first half, based on the likelihood that the fourth quarter will not witness severe expenditure cuts unlike in previous years.

The recent floods in Tamil Nadu will reduce GDP, but not substantially, the report added.

Unless oil prices decline further, this annual estimate of 8.2 per cent would represent two successive years of a substantial decline in nominal GDP growth.

On CPI inflation, the Finance Ministry report sees it to be within the RBI’s target of about 6 per cent.

Related Topics