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No looking back: India all set for growth amid shrinking deficit

Last updated on: February 27, 2015 14:34 IST

India's economy will grow at a rate of more than 8 percent in the 2015/16 fiscal year, while consumer inflation will drop to between 5 and 5.5 percent, a government economic report said on Friday.  

The report also indicated India can increase public investments and still hit its borrowing targets, while saying the country needed to adhere to its medium-term fiscal deficit target of 3 percent of gross domestic product.  Budget 2015: Complete Coverage

Noting India had hit an economic sweet spot, the report added the country had room for big bang reforms.  

Commentary

Radhika Rao, Economist, DBS, Singapore

"Today's Economic Survey validates expectation that fiscal goal posts will be adhered to and consolidation remains on track.  

"The FY15/16 (fiscal) deficit is likely to remain close to -3.6 percent of GDP. Overall, the favourable macro-environment helped by low crude prices, financial market stability, and renewed confidence in the Indian economy provide a good starting point to kick start the reform process.  

"A sharp increase in devolution of revenue to states is on the cards.  

"In addition, higher public investments will be funded through further subsidy rationalisation, growth upturn, savings from low crude prices, and higher divestment proceeds.  

Budget 2015: Complete Coverage

"One needs to note the nominal GDP rate in tomorrow's budget. Even if the growth projections are upbeat, lower GDP deflator will bring down the nominal growth rate. The latter needs to be reflected in the revenue and expenditure projections to ensure these are realistic. Over time, reliance on privatisation receipts needs to be lowered."

Ganti Murthy, head of fixed income, IDBI Asset Management, Mumbai

"The economic survey is the government's statement of intent. We still need to see how they manage the revenue and expenditure sides in the budget tomorrow.  

"But the good thing is that they have confirmed their intent to stick to the 4.1 percent fiscal deficit target for this fiscal (year), and more importantly they have come out with the 3 percent fiscal deficit target for the medium term.  

"But what's not clear is how they define medium term, we will have to watch out the budget for clues on that.  

"The positive for the market is that there is now a clear scope for big bang reforms, with both WPI (wholesale price inflation) and CPI (consumer price inflation) expected to stay under the central bank's target"

Economic Survey 2014-15

S Ramaswamy, chief investment officer, LIC nomura Mutual fund, Mumbai

"The survey shows positive numbers on fiscal deficit and GDP. If these targets are confirmed in the budget, expect a rally in bonds and equities.  

"Given where crude is, I don't see why RBI can't cut rates. If budget sticks with these numbers of economic survey then I would not be surprised to see a rate cut by the Reserve Bank of India on Monday."

Subhada Rao, chief economist, Yes Bank, Mumbai

"It basically says the economy is now poised to take off, with key enablers getting into place.  

"Triggering an investment-led growth environment should augur well for India's growth trajectory to get on to a higher path.  

"The government is not going to be easing its resolve to maintain fiscal consolidation. We anticipate that given the comfort on inflation, measures to boost investment are likely to concretely come on board.  

"We expect the Union Budget to maintain a similar underlying theme. We are looking at fiscal deficit projection of 3.6 percent for FY16.  

(Reporting by Neha Dasgupta, Abhishek Vishnoi, Himank Sharma, and Swati Bhat)

Source: REUTERS
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