By IANS,
New Delhi : India must be prepared to face a lower growth of seven percent this fiscal on account of the impact of global slowdown, Minister of State for Finance P.K. Bansal said in parliament Tuesday in what has been the most pessimistic official projection yet on the country’s economic expansion.
“A crisis of this magnitude in industrialized countries is impacting economies around the world and India has also been affected,” Bansal said in the mid-year review of the Indian economy tabled in both houses of parliament.
“It is difficult to make a precise forecast about growth prospects for the whole year at this stage because of the uncertainty, though the expectation is that it would be in the range of 7-8 percent,” he said.
“We have to be prepared, however, for growth to be around 7 percent in 2008-09 as a whole.”
The minister said India’s gross domestic product (GDP) growth in real terms in the first half of the current fiscal year had been 7.8 percent, which was a fairly robust performance.
“However, it is likely to be significantly slower in the second half as the impact of slower export growth and weaker domestic demand, including a possible dampening of private investment, begin to be felt.”
This mid-year review is the second quarterly review as required under the Fiscal Responsibility and Budget Management Act, 2003, and reports the developments in the economy and presents the finances of the central government during the first half of the fiscal.
The review said that if appropriate policy actions were initiated, India had several strengths that could help mitigate the adverse effects of the global financial crisis and the recession in some rich countries, compared with other emerging economies.
It listed the reasons as under:
– A relatively high share of services in gross domestic product than many other emerging economies and developing countries
– Strong rural income and consumption due to five years of nearly 4 percent farm growth and rural job guarantee programme
– High domestic saving rate of 36 percent in 2007-08 that should push investment
– Ambitious programme of infrastructure investment in the 11th Plan that should offset slowdown in corporate investment
– Scope for easing the monetary policy measures after the tight money policy in the first half of the fiscal
– An increase of 100 basis points in the investment rate in the first half of the fiscal
“In the face of global slowdown and a moderation in private investment demand, accelerating the pending policy reforms is the answer to flagging business sentiments and brining the economy back to 8.5-9 percent growth path,” the review said.
Briefing reporters later, Chief Economic Advisor in the Finance Ministry Arvind Virmani said there was a substantial stimulus this year both from the government and the central bank to help India sustain high growth.
“But the latest financial crisis is a monetary shock,” he said, adding: “The decline in crude oil prices will create more fiscal space.”