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’13Capital inflows expected at $ 73.2 bn in FY’13Inflation to be between 6.5 – 7% by end of Feb 2013Fiscal imbalance continues to be a major area of policy concernCurrent Account Deficit expected to be 3.6% in FY’13There is dark mood in the advanced economiesLower growth in US and Europe will adversely impact India’s exportsDomestic savings rate projected at 31.7% Farm sector expected to grow at 0.5% in FY’13Manufacturing sector expected to grow at 4.5% in FY’13Agriculture has been impacted due to weak monsoonManufacturing sector is expected to improve in the second half of this fiscalMining sector to grow at 4.4% in the current Financial YearSome recovery in coal, lignite and iron ore likelyElectricity sector likely to grow at 8%Construction likely to show some improvement later in this fiscalFalling savings and investment rates a big concernServices sector to show some improvement particularly in transport, trade and communications sectorSavings and investment rates need to be accelerated to achieve growth targetCurrent account deficit in FY’12 was the highest so farEconomic situation in Europe a matter of concern2.6% of the GDP consisted of gold and oil imports last fiscalFall in trade deficit due to lower oil and gold importsOil prices have gone up but lower than the previous yearGold imports likely to fall on moderating inflationCapital flows of $ 67.8 bn likely to cover the Current Account Deficit this fiscalAfter covering the CAD net accretion to the reserves likely to be at $4 bnThe ability of the govt stocks to play a moderating role in inflation is not thereFood price inflation likely to remain highNeed to adjust oil prices, factoring this inflation is likely to be 7%State govt finances in a better state than the Centre’sManagement of fiscal deficit dependent on Subsidy Bill and improvement in the tax GDP ratioGST critical for maintaining fiscal balanceNeed to correct oil subsidies Need to push investment in infrastructure sectorNeed to push for FDI in multi brand retailFDI in Civil Aviation or foreign airlines at 49% should be allowedPrices of diesel prices should be adjusted in one or more phasesUsage of LPG should be capped at 4-6 cylindersTaming inflation, containing fiscal deficit and controlling Current Account Deficit are the 3 most important economic concernsFall in inflation would lead to monetary easingCAD should be controlled at 2.6% of the GDPGovt needs to focus on addressing arbitrary actions on tax and other fronts Some concerns of the rating agencies are genuineBetter fiscal deficit and current account deficit numbers will influence rating agenciesWe 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

C Rangarajan on state of economy: Highlights

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