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Despite the recent deluge of negative economic news, the Finance Ministry claims the second half of October will see key steps forward in terms of foreign exchange inflows and commencement of some projects approved by the Cabinet Committee on Investment (CCI), apart from other growth-driving developments.
Besides boosting growth prospects, these developments will help cap the current account and fiscal deficits within the ‘red line’ drawn by the Finance Minister, officials said.
The Ministry’s optimism has apparently not been diminished by the plunging factory output — industrial production skidded to 0.6 per cent in August — or the IMF joining the long list of those predicting lower growth. The IMF cut its GDP growth projection to 4.25 per cent (at factor cost and 3.8 per cent at market price) for 2013-14.
“We expect some of the over 170 projects (approved by the Cabinet Committee on Investment) to kick off during second half of the month as all approvals are in place and banks have also disbursed money,” a senior Finance Ministry official told Business Line . However, he refused to give details of the projects on which work is likely to start.
Analysts differ
The Centre is also hoping that the good monsoon will take agricultural growth to as much as 5 per cent, against the initial estimate of 4 per cent. With rural India in funds, consumer demand will get a boost, which, in turn, will help the manufacturing cycle. All these should take overall economic growth over 5 per cent, the official reasoned. However, analysts are not convinced. Sonal Verma of Nomura feels that with the fiscal deficit already at nearly 75 per cent of the full-year target, a sharp constriction in government spending can be expected.
“Additionally, cost-push inflation, due to past currency depreciation and high food inflation, is squeezing corporate margins and hurting consumers’ real purchasing power. Hence, even with better monsoons, we expect non-agriculture GDP growth to slow down due to weak domestic demand, hurting overall growth. We expect real GDP growth at a below-consensus 4.2 per cent in 2013-14,” she said.
Forex flows
On foreign exchange flows, the ministry official said that funds raised from overseas investors by three institutions — IIFCL, PFC and IRFC — will start flowing in within the next 15 days. These three institutions have been permitted to raise up to $4.5 billion through tax-free bonds.
In the meantime, infrastructure financier IDFC has managed to get a commitment for $644 million from foreign investors towards the second Infrastructure Development Fund and hopes to raise $1 billion.
These, along with three consecutive months of double-digit growth in exports and a dip in imports, will help control the current account deficit.
“Going by the current trend, we expect CAD of 1 per cent during the second quarter. Consequently, the year’s target of $70 billion now seems to be more realistic,” said D. K. Pant, Chief Economist with India Ratings & Research.
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