C Rangarajan on state of economy: Highlights

Economic growth for the current financial year is expected at 6.7 per cent, said C Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister, during the mid-year economic outlook on Friday. He also said that fiscal deficit is likely to be 5.06 per cent of the GDP, while current account deficit is expected to be 3.6 per cent of the GDP.

Here are highlights of his speech:

Economy to grow at 6.7% in FY’13
Capital inflows expected at $ 73.2 bn in FY’13
Inflation to be between 6.5 – 7% by end of Feb 2013
Fiscal imbalance continues to be a major area of policy concern
Current Account Deficit expected to be 3.6% in FY’13
There is dark mood in the advanced economies
Lower growth in US and Europe will adversely impact India’s exports
Domestic savings rate projected at 31.7%
Farm sector expected to grow at 0.5% in FY’13
Manufacturing sector expected to grow at 4.5% in FY’13
Agriculture has been impacted due to weak monsoon
Manufacturing sector is expected to improve in the second half of this fiscal
Mining sector to grow at 4.4% in the current Financial Year
Some recovery in coal, lignite and iron ore likely
Electricity sector likely to grow at 8%
Construction likely to show some improvement later in this fiscal
Falling savings and investment rates a big concern
Services sector to show some improvement particularly in transport, trade and communications sector
Savings and investment rates need to be accelerated to achieve growth target
Current account deficit in FY’12 was the highest so far
Economic situation in Europe a matter of concern
2.6% of the GDP consisted of gold and oil imports last fiscal
Fall in trade deficit due to lower oil and gold imports
Oil prices have gone up but lower than the previous year
Gold imports likely to fall on moderating inflation
Capital flows of $ 67.8 bn likely to cover the Current Account Deficit this fiscal
After covering the CAD net accretion to the reserves likely to be at $4 bn
The ability of the govt stocks to play a moderating role in inflation is not there
Food price inflation likely to remain high
Need to adjust oil prices, factoring this inflation is likely to be 7%
State govt finances in a better state than the Centre’s
Management of fiscal deficit dependent on Subsidy Bill and improvement in the tax GDP ratio
GST critical for maintaining fiscal balance
Need to correct oil subsidies Need to push investment in infrastructure sector
Need to push for FDI in multi brand retail
FDI in Civil Aviation or foreign airlines at 49% should be allowed
Prices of diesel prices should be adjusted in one or more phases
Usage of LPG should be capped at 4-6 cylinders
Taming inflation, containing fiscal deficit and controlling Current Account Deficit are the 3 most important economic concerns
Fall in inflation would lead to monetary easing
CAD should be controlled at 2.6% of the GDP
Govt needs to focus on addressing arbitrary actions on tax and other fronts
Some concerns of the rating agencies are genuine
Better fiscal deficit and current account deficit numbers will influence rating agencies
We need to show that we are moving in the right direction
Rating agencies should also keep in mind that none of the western countries have been able to contain their fiscal deficit