A file photo of finance secretary Arvind Mayaram. Mayaram said he expects inflation to ease in the coming months, which could lead to a policy rate cut by the Reserve Bank of India (RBI). Photo: Ramesh Pathania/Mint
New Delhi: The first signs of recovery are “surely visible” in the economy and growth may touch 5.8% in the year to next 31 March, lifted by strong growth impulses in the national budget unveiled last month, finance secretary Arvind Mayaram said on Thursday.
“If we do not confine ourselves to a myopic view (in terms of monthly releases), green shoots of recovery in the economy are surely visible,” Mayaram said at an event organized by the industry lobby Associated Chambers of Commerce and Industry, or Assocham.
“We are not only in the right direction but with the measures announced in the budget, we will be able to set an example for other countries and will contribute to global growth,” he said.
The new government is engaged in an effort to life economic growth, which has languished below 5% in each of the last two financial years. The economic survey released last month projected economic growth this year at 5.4-5.9%. The statistics department will release gross domestic product (GDP) data for the first quarter on 31 August.
The Index of Industrial Production (IIP) grew 3.5% in the fiscal first quarter (April-June) after contracting by 4.8% in the fourth quarter (January-March) of the last fiscal year.
“It is true that the June industry output slowed to 3.4% but if we decode the components of IIP, we see a surge in capital goods which were up 23%, which means order books are picking up,” Mayaram said.
Mayaram said he expects inflation to ease in the coming months, which could lead to a policy rate cut by the Reserve Bank of India (RBI).
“(RBI) governor (Raghuram Rajan) in the recent credit policy statement stated that RBI will not hold interest rates high any longer than is necessary and if disinflation proceeds as warranted, there will eventually be room to cut rates, which is a positive announcement,” Mayaram said.
India’s wholesale price inflation slowed to a five-month low of 5.19% in July from 5.43% a month ago, while consumer price inflation quickened to 7.96% from 7.46%. RBI on 5 August kept its key policy rates unchanged and indicated that it was not ready to relax monetary policy yet.
Mayaram said the government is confident of containing the current account deficit to below 2.5% of gross domestic product (GDP) in 2014-15, still higher than the 1.7% of GDP in 2013-14. “It will be higher only because of higher imports of intermediate products such as raw material which clearly means uptick in manufacturing sector,” he added.
Although finance minister Arun Jaitley has said that achieving the fiscal deficit target of 4.1% of GDP is a “tough task”, Mayaram said with revenue collection expected to pick up in the last three quarters of the current financial year, the deficit target will be achieved.
With the global oil prices moderating, Mayaram said, the government will be able to exit its diesel subsidy soon, after which the fuel will be sold at market price.
“There is also an emphasis on direct benefit transfers which the Prime Minister himself has endorsed. Therefore, we believe in the next two to three years, the subsidy burden will come down significantly,” he added.
Yes Bank Ltd, in a research note, said it expects the economy to grow 5.4% in the current fiscal year. “We see cyclical recovery taking shape led by improvement in investments and exports. However for growth to turn stronger and balanced, structural reforms are the solution,” the note said. “The new Government in its early days has demonstrated its intent on the shape of these economic reforms, but will have to move quickly within the political and legislative system with states on board, to affect the requisite changes in order to ease supply constraints and propel growth,” it added.
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