Economy to get back on 8 pc growth trajectory in 2 years: Plan Panel

Planning Commission Deputy Chairman Montek Singh Ahluwalia exuded confidence about India's potential, saying the economy will get back on the targeted growth trajectory of 8 per cent after two years.

"I think we can hit what we thought was our trajectory two years later because of the slowdown that we have," Ahluwalia said on Tuesday, on the sidelines of the 34th SKOCH Summit in New Delhi.

The economy expanded at a decade-low rate of 5 per cent in the first year of the 12th Plan (2012-17) period, during which the government has targeted an annual average growth rate of 8 per cent.

In the April-June quarter of the current financial year, economic growth slowed to 4.4 per cent, compared with 4.8 per cent during January-March. Growth was 5.4 per cent in the April-June period of the previous financial year.

"I believe that the long- or medium-term growth potential of the economy remains 8 per cent, provided you do all things outlined in the 12th Plan. Obviously, the first two years are not going to be at that level," Ahluwalia said.

According to Ahluwalia, the average economic growth rate in the 12th Plan period will be lower than 8 per cent and the Commission will make its estimate next year during the mid-term review of the five year policy.

Ahluwalia said he expects growth to improve in the second half of the current financial year.

"The second half of the year should be better. The first half was lower. So for the year as a whole to be better than 5 per cent, the second half has be really good. We don't know the numbers," he said.

Asked whether the slowdown is over, Ahluwalia replied: "I believe that the economy has bottomed out. The financial experts say that there will be turnaround. It is clearly not a strong rebound. But there is evidence that (there will be turnaround)."

India's exports in October grew 13.47 per cent to $27.2 billion, the fastest pace in two years, government data showed yesterday.

"The news on the exports front is very encouraging," Ahluwalia said.

He said the current account deficit will probably be lower than the target set by the Finance Minister. The deficit refers to the difference between outflows and inflows of foreign currency.

"He (the Finance Minister) himself said that instead of $70 billion, it would be $60 billion... The important news is that it would be much lower than $88 billion last year. That means we need less money. That should increase the assessment of micro-economic stability," he added.

Plan spend may be axed again: Monte

higher subsidy burden and a shortfall in revenue receipts might force the government to lower its Plan expenditure this year, too, as it is determined to restrict its fiscal deficit to 4.8 per cent of GDP. The move may, however, pull down GDP growth, which fell to a four-year low of 4.4 per cent in the quarter ended June 2013.

Planning Commission deputy chairman Montek Singh Ahluwalia said a cut in Plan expenditure could be considered while finalising the Revised Estimates. Asked whether it was proposed that Plan expenditure be cut, he said: “If we are asked to do so, we will cooperate. Discussions usually start around November. The finance ministry has said the 4.8 per cent target for fiscal deficit is sacrosanct.”

A cut in government spending would come at the cost of growth. In the quarter ended June, growth was primarily aided by community, social and personal services, representing largely government spending. The category expanded 9.4 per cent, against 8.9 per cent in the year-ago period and four per cent in the quarter ended March this year.

Finance Minister P Chidambaram had said the target of reining in fiscal deficit at 4.8 per cent of GDP this financial year was a red line that wouldn’t be breached. In the first quarter of this financial year, the government’s fiscal deficit touched 10.49 per cent of GDP, standing at 62.8 per cent of the Budget estimate for 2013-14, against 51.5 per cent in the year-ago period.

In 2012-13, the government was able to rein in its fiscal deficit at 4.9 per cent, against the Budget estimate of 5.2 per cent, owing to a cut of Rs 92,000 crore in Plan expenditure. This year, however, the cut is unlikely to be so steep, as the Budget estimate is only 11.7 per cent higher than that last year.

Owing to the rupee depreciation and a rise in crude oil prices, this year, there would be a higher-than-projected burden for fuel subsidy and, to an extent, fertiliser subsidy. Besides, meeting the disinvestment target of Rs 40,000 crore would be difficult if the market situation doesn’t improve.

So far, receipts from divestment stand at only Rs 1,325 crore. Tax collections also face the risk of a shortfall. Continuing with its austerity measures announced last year, the finance ministry might also issue instructions for a 10 per cent cut in non-Plan expenditure and a ban on creation of new government posts.