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Govt slashes GDP outlook, ambivalent on deficit
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SME Times News Bureau | 19 Dec, 2015
Government sharply cut its growth forecast by as much as one percentage point to
7-7.5 percent for this fiscal, cautioning that challenges remain despite
progress, while also sounding circumspect on meeting the fiscal deficit
target of 3.9 percent of GDP.
This had a telling effect on Indian stocks, pulling key indices down by over 1 percentage point.
In
a mid-year review tabled in parliament on Friday, the finance ministry
also said the fiscal deficit target for the current fiscal will be met
despite some setbacks on divestment, but did not profess optimism on
this front for the next fiscal year.
It, nevertheless, said the situation on the inflation front was improving.
"Economy
has made considerable progress but challenges remain. The government
aims to meet fiscal deficit target of 3.9 percent (of GDP) without big
expenditure cuts," said the report, authored mainly by Chief Economic
Advisor Arvind Subramanian.
The earlier growth forecast was
8.1-8.5 percent, as estimated in the Economic Survey presented in
February. Against this, the economy expanded by 7.4 percent in the
second quarter of 2015-16 and 7 percent in the first quarter, according
to official data.
One of the reasons for the lower growth was the
performance of the country's farm sector, and the country's official
chief economist lamented that continuing dependence on monsoon rains
remained among the main imponderables to economic outlook.
On
fiscal deficit, the report said a lower than expected expansion in the
economy will by itself raise the target by around 0.2 percent of GDP, as
this is indexed to the government's revenues and expenditure, even as a
likely drop in divestment receipts will add to the burden.
"GDP
growth has been powered only by private consumption and public
investment is a concern. The proposed wage hike for government workers
may impact plan for next fiscal," the report said. But tax collections,
it added, were relatively buoyant, powered by indirect levies.
Minister
of State for Finance Jayant Sinha, however, remained steadfast on
meeting the deficit targets. "We will absolutely meet our fiscal
consolidation roadmap. We've said the 3.9 percent fiscal deficit target
this year is well in hand," he told reporters outside parliament.
With
reference to inflation, the forecast of the year ending with a retail
annual overall price rise of around 6 percent was in line with the
target set by the Reserve Bank of India. But the survey was worried over
production of pulses that has seen prices spiralling in recent years.
On
the external front, the survey expressed concern over exports -- which
have declined for 12 straight months. It said this was also pulling down
growth but felt the situation would improve in the coming months.
On
the fall in the value of the Indian rupee, the survey attributed it
considerably to the major devaluation of the Chinese yuan, but added
that the 6.3-percent depreciation during this fiscal showed that the
country's currency fared better than its peer economies.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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