The Economic Advisory Council to the Prime Minister in its recently published assessment of the Indian economy has stated that the economy is to grow by 6.5% in the current fiscal, 2009-2010. This projection by the EAC is more optimistic than Reserve Bank of India’s prediction of 6% and also by the IMF’s prediction of 6.4%. This prediction is largely based on the robust and vigorous industrial growth achieved in the second half of this fiscal.
According to Economic Advisory Council to the Prime Minister’s report, this recovery in the economic growth is unlikely to get affected in the coming quarters as the stimulus package provided by the central government during last year global financial crisis which is providing the cushion to the growth are going to be continued. Also with the benign monetary policy maintained by the RBI and continuance of the stimulus package, will definitely accelerate the economic growth in the coming quarters. This will create a good investment opportunity for the foreign funds to capture the rise in economy growth by investing in the market.
The EAC has observed that the government may consider early next year to partially withdrawing the stimulus package which has put strain in its fiscal deficit. Or the easy monetary policy being maintained by the RBI may get changed if the inflation edges past 6% which will put the RBI in a bind to increase the interest rate to cap the inflation. Overall, the EAC is indeed optimistic in the growth of the economy in the coming quarters.
The Economic Advisory Council has attributed the huge fiscal deficit in the current fiscal, 2009 – 10 because of the additional expenditure being incurred by the central government in the form of subsidies, pay revision, loan waiver. But the EAC is confident that the fiscal deficit for 2010-11 may be brought down by 1.5% from the current level, if the government maintains its expenditure on various schemes at the current levels. The current level of 10.9% of fiscal deficit is by all means way above the normal limit and EAC is advising to take up necessary corrective measures to bring down the huge fiscal deficit.
The other booster for the economy is expected from the export sector. The EAC is expecting that the third & fourth quarters of 2009 – 10 will improve dramatically because of favorable export figures from non-oil, non-gem and jewellery exports. On the import front, the EAC expects a marginal dip in the current fiscal. This is because of lesser demand for capital goods, industrial raw materials and crude oil.
The major drag on the economy front is going to come from the negative growth in farm sector. Because of deficient monsoon, the farm sector is expected to post negative growth for the first time in the last seven years at (-)2% as against a growth of 1.6% in the last financial year. Except from the expected farm sectors negative growth, the overall economy is poised to witness a good recovery and also going to sustain its growth trajectory in the coming quarters.