India's economic growth forecast for 2011-12 has been revised downwards to 7.5 per cent.
This is much lower than the 9 per cent GDP growth forecast for the current fiscal in the Economic Survey released in February.
This significant downward revision in economic growth forecast, although on expected lines, is reflected in the mid-year analysis (2011-12) report tabled by the Finance Minister, Mr Pranab Mukherjee, in the Lok Sabha on Friday.
Sensex tumbles
The Government move to lower GDP growth forecast and weak Asian cues led to a sharp fall in the benchmark Sensex, which tumbled 275 points on Friday.
The sluggishness in the industrial sector in the first half of the current fiscal, besides the sharply deteriorating global economic environment, which has had a dampening effect on India, has prompted the Centre to go in for the downward revision.
India's GDP growth had slowed down to 7.3 per cent in the first half of 2011-12 compared with 8.6 per cent in the same period last year. Industrial sector grew 4.2 per cent, substantially lower than the 8.1 per cent in the corresponding period of last year. Although the GDP growth forecast has been lowered, the Centre is optimistic of “some revival” next year. It has, however, noted in the report that the outlook remains mixed.
“If Europe slides into a proper recession, with all the attendant financial contagion that will no doubt affect other nations, the entire world economy will slowdown and we could also be impacted. On the other hand, given that India's fundamentals are strong, if Europe and the US remain stable, it should be possible for us to get back close to our long-run target of 9 per cent,” says the mid-year analysis report.
The GDP growth forecast of 7.5 per cent, +/- 0.25 per cent, for 2011-12 is also lower than the actual economic growth of 8 per cent and 8.5 per cent in 2009-10 and 2010-11 respectively, the first two years of the UPA-II regime.
Caution on expansion
The mid-year analysis has highlighted that the stuttering US economy and the European sovereign debt crisis was clearly hurting India's growth. The report has cautioned that India's economic expansion next fiscal may be further affected if these problems are not solved.
“The slowing performance of the US economy is a matter of concern. However, the sovereign fiscal and debt crisis in the Eurozone is potentially more serious, because of the systemic impacts globally — for banks, bonds, currencies and other asset markets,” says the report.
The report also noted that the picture of the world economy has turned. “While China, India and other large emerging markets are not entirely immune to the ongoing crisis in developed countries, their vulnerabilities are much less”.
On fiscal consolidation, the report has stressed the need to adopt a gradual path. This is because the nature of fiscal deficits in India is largely structural. The Government is, however, determined to keep the overshooting of the fiscal deficit target of 4.6 per cent to as minimal as possible, the report said.