GDP growth pegged at 5.4-5.9%, concerns remain: Survey

Indian economy is likely to grow in the range of 5.4 to 5.9 per cent in 2014-15 overcoming the sub-5 per cent GDP growth of past two years, even as poor monsoon and disturbed external environment remain a cause for concern, says the Economic Survey.

"The growth slowdown in the last two years was broad based, affecting in particular the industry sector. Inflation too declined during this period, but continued to be above the comfort zone, owing primarily to the elevated level of food inflation", said the Survey for 2013-14 tabled by Finance Minister Arun Jaitley in Parliament on Wednesday.

The Survey, released a day ahead of the budget for 2014-15, expects that moderation in inflation will ease the monetary policy stance and revive the confidence of investors. "...with the global economy expected to recover moderately, particularly on account of performance in some advanced economies, the economy can look forward to better growth prospects in 2014-15 and beyond," it said.

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As regards the downside risks, the Survey lists factors like poor monsoon, the external environment and the poor investment climate.

They can have a bearing on the growth recovery, it added. After recovering in 2009-10 and 2010-11, GDP growth slowed down to decade's low of 4.5 per cent in 2012-13. It picked up marginally to 4.7 per cent in 2013-14.

The Survey further said the measures taken by the government to improve investment climate and improve governance could push up growth to 7-8 per cent in the coming years.

The priority of the new government, the Survey said, should be to revive business sentiments "that could be at the heart of restarting the investment cycle."         

Regaining growth momentum requires restoration of domestic macroeconomic balance and enhancing efficiency, it said, adding, "to this end, the emphasis of policy would have to remain on fiscal consolidation and removal of structural constraints."  

"Though some measures have been initiated to this end, reversion to a growth rate of around 7-8 per cent can only occur beyond the ongoing and the next fiscal," it added.

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Apart from fiscal consolidation, maintaining a stable external balance and further control of inflation, priorities for growth revival should also include streamlining of implementation procedures to restart the investment cycle and simplification of tax policy.

The Survey also made a case for repealing of archaic laws governing market access, expansion and entry/exit of firms and revamp of the dispute resolution mechanism for commercial disputes to lend greater predictability to policy, giving boost to physical infrastructure and improving productivity in agriculture.

Targeted measures by the government and RBI, it added, "have improved the external economic situation significantly, even as India remains exposed to risk on/off sentiments of investors and to policy shifts in advanced economies."

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Aggregate demand (measured in terms of GDP at market prices) registered a growth of 5.0 per cent in 2013-14 as against 4.7 per cent in 2012-13 primarily due to improvement in net exports.

The decline in the rate of gross fixed capital formation in 2013-14 reflects subdued business sentiments.

The investment boom in India till 2007-08 was largely due to significant increase in investment by the private corporate sector.

The steep reduction in the rate of private corporate investment, leading to slowdown in overall investment rate in the economy, in recent years, point towards the need for revival of business sentiments, it added.

The Survey said the dramatic improvement in the external economic situation with the current account deficit declining to manageable levels and reduction in the fiscal deficit in 2013-14, along with some moderation in inflation, "augur well for macroeconomic stabilisation and revival of business confidence and investment." 

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The external sector witnessed a turnaround after the first quarter of 2013-14 and the year ended with a Current Account Deficit of 1.7 per cent of GDP as against 4.7 per cent in 2012-13.

Improvement is also observed on the fiscal front, with the fiscal deficit declining from 5.7 per cent of GDP in 2011-12 to 4.9 per cent in 2012-13 and 4.5 per cent in 2013-14.

As regards the industry, it said, the contraction in mining and quarrying for the second year in a row in 2013-14 and the negligible growth in manufacturing over the past two years, indicate the severity of structural bottlenecks.

A slowdown was also noticed in services, in particular the internal trade, transport, and storage sectors that are largely attributed to the loss of momentum in commodity-producing sectors, especially, the industry sector.

"Thus, the revival of the industrial sector, with its economy-wide linkages, is central to the revival of aggregate economic activity," the Survey said.

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With regard to the farm sector, the Survey said, the agriculture and allied sectors achieved a growth of 4.7 per cent in 2013-14 compared to its long term average of around 3 per cent (between 1999-2000 and 2012-13).

Record food grains production of 264.4 million tonnes is estimated in 2013-14, as per the third Advance Estimates, indicating an increase of more than 20 million tonnes over the average production during the previous five years. Horticulture production is estimated at 265 million tonnes in 2012-13 and for the first time has exceeded the production of food grains and oilseeds.

The robustness of the agriculture and allied sector can be attributed to the steady increase in gross capital formation (GCF) in this sector.

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