India lowers GDP target for 2015-16

7-7.5 per cent growth predicted

The government on Friday lowered its economic growth forecast for 2015-16 to 7-7.5 per cent, significantly lower than the 8.1-8.5 per cent GDP growth estimated in February due to weak global demand and lower agriculture output, according to the Mid-Year Economic Analysis 2015-16 tabled in Parliament on Friday.

It warned that unless supply-side reforms provide an impetus to growth, and if government stuck to the fiscal consolidation path, GDP growth in the next fiscal is not likely to be “significantly greater than growth this year”.

It said the government’s commitment to further bring down the fiscal deficit next fiscal by 0.4 per cent needs to re-assessed so that pubic spending could fill in for weak private investments. “Recent international experience from Europe and elsewhere has shown that fiscal multipliers tend to be large, especially at a time of contracting nominal GDP,” said the report.

The Mid-Year Economic Analysis projected that the budget deficit target would be met and retail inflation was likely to be within the RBI’s target of about six per cent. It said the effect of the floods in Tamil Nadu will be to reduce GDP, but not substantially.

“Fiscal deficit target of 3.9 per cent this year will be steadfastly met... 3.5 per cent next year looks more challenging (because of higher outgo on Central staff wages due to implementation of the 7th Pay Commission and defence pensions),” said chief economic adviser Arvind Subramanian, the author of the Mid-Year Economic Analysis.

Mr Subramanian said the outlook is challenging as private investment remains weak and government expenditure due to increased spending on wages and pensions is set to increase. “The economy is recovering but it’s hard to be very definitive about the strength and breadth of the recovery for two reasons — the economy is sending mixed signals and, second, there is some uncertainty on how to interpret GDP data,” he said.

On the signals, the chief economic adviser said that Leader of the Opposition in the RS Ghulam Nabi Azad said, “Nothing new was discussed at this meeting apart from what was discussed earlier at the Business Advisory Committee meeting.” When asked whether the Congress has agreed to the passage of some bills, he said some of the bills on which his party has committed support, like the SC/ST Bill, will be passed along with the Appropriation Bills.

“There was no discussion on GST. The discussion was on some bills on which there is a general consensus. Everybody is aware that there is no consensus on GST. Not only Congress has some reservations but other parties also,” Mr Azad said when asked whether any decision on the GST Bill was taken at the meeting.

Minister of state for parliamentary affairs Mukhtar Abbas Naqvi said, “There has been a very meaningful discussion in the meeting. A number of parties have expressed concern over Parliament not functioning... All of them decided that the House should function. It has been decided to pass the pending government bills even by sitting late.” On the GST Bill, Mr Naqvi said finance minister Arun Jaitley made an appeal to the Opposition to pass the Constitution amendment bill as well in the conducive atmosphere that emerged after the meeting. “But I don’t think the main Opposition party has an agreement on this,” he said, adding that other Opposition parties favour passage of the bill. Ever since the Winter Session started on November 26, the Rajya Sabha has been disrupted over a variety of issues. Discussions on issues like price-rise, impact of floods and drought on agriculture, intolerance, and political developments in Arunachal will also be taken up during the last three days. The House will work extra hours to compensate for the loss of legislative business. After the meeting, RS deputy chairman P.J. Kurien said, “The Rajya Sabha was not functioning till today, except that we passed one bill and some other intervention took place. The Chairman was very disturbed and anguished over this. Many of us share that feeling and, seeing that there are only three more days left, called a meeting of the leaders of all parties.”