India’s GDP growth rate pegged at 6.1-6.7%, Reforms poised for upswing

India’s economic policy planners are finally getting it right. The country’s economic survey for 2012-13 sees the current slowdown as “a wake-up call” for stepping up reforms and conjures up an optimistic picture, projecting the growth rate of 6.1-6.7 per cent in the next fiscal year.

The pre-Budget Economic survey, which was tabled in India’s Parliament by Finance Minister P. Chidambaram Feb 27, a day ahead of the national budget for 2013-14, claims that the “downturn is more or less over”, and outlines key instruments to achieve the 6 per cent plus growth target. The survey calls for speeding up economic reforms, which have languished in the mire of partisan politics, and underlined the government’s commitment to cut subsidies.

“Controlling the expenditure on subsidies will be crucial. The domestic prices of petroleum products, particularly diesel and LPG need to be raised in line with their prices prevailing in the international market,” the Survey said.

The survey also predicted that inflation will decline to between 6.2 and 6.6% by next month, but added a word of caution, saying that food inflation would continue to remain an area of concern as it surged to double digit figure in December last year.

The Survey underscored ways to prune down subsidies through better targeting and for cutting down delivery leakages through initiatives like the Direct Benefit Transfer (DBT) scheme.

 

Authored by Chief Economic Advisor Raghuram Rajan, the survey indicates the policy planners’ willingness to draw apposite lessons from the current slowdown. “The slowdown is a wake-up call for increasing the pace of actions and reforms,” said the survey.

“While India’s recent slowdown is partly rooted in external causes, domestic causes are also important,” it said. The report points out that India’s growth story is unlikely to get support from the global economic developments and would remain linked to movement in international oil prices.

“These are difficult times, but India has navigated such times before, and with good policies it will come through stronger,” Rajan said in his introduction to the Survey. He also prescribed shifting national spending from consumption to investment, removing hurdles to investment, growth and job creation to quicken the country’s growth rate.

The survey made a strong pitch for quick action after the opening up of the retail trade industry to overseas companies and said this will not just pave the way for flow of investment in new technology, but also for marketing of farm produce in India. “Fast agricultural growth remains vital for jobs, incomes and food security.”

A special chapter on jobs says that the future holds promise for India if it seizes the demographic dividend, with nearly half of the additions to the labour force till 2030 expected in the 30-49 age group. “Because good jobs are both the pathway to growth as well as the best form of inclusion, India has to think of ways of enabling their creation,” says the survey.

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