Asia’s third-largest economy is now expected to grow 7-7.5% in the fiscal year ending in March 2016, the finance ministry said in its mid-year economic review, down from an estimate of 8.1-8.5% announced in February.
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The Indian economy grew 7.2 per cent in the April-September period of this fiscal year.
With growth in the first half the year already touching 7.2% it only means that any pickup in the second half of the year would be only marginally higher than in the first half of the year or that it can even slip below that.
One of red flags it raised is on impact of the slowdown on India’s debt levels.
Retail inflation, it said, is likely to be within the target of about 6 per cent.
“The economy has made considerable progress, but challenges remain”, the ministry said.
India warned that it may have to reassess its budget deficit projections for the next fiscal year if growth slows, though higher tax revenues will offset a shortfall in asset sales and help meet this year’s target. This is because the continuing decline in nominal GDP growth and the excess dependency on private consumption and public investments to boost growth have now become matters of concern.
Finance Minister Arun Jaitley has pledged to trim the fiscal deficit to an eight-year low of 3.9 percent of the GDP in 2015/16 and 3.5 percent next fiscal year.
But falling demand across the world has led to a steep drop in India’s exports – which in November fell for the 12th straight month, down 24 percent from a year earlier.
“To move India rapidly to its medium-term growth trajectory, supply side reforms and demand management will be essential”.
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“Capital expenditure has not yet picked up, rural and export demand is weak, and the translation of the monetary policy loosening into lower bank lending rates is limited”, the agency said in a report. In this context, the government said the commitment to further fiscal consolidation of 0.4 percent of GDP needs to be re-assessed.
