Foreign institutions GDP expectations downbeat. Govt upbeat. Who will get it right?

Business

oi-Sunil

By Sunil Fernandes

Published: Wednesday, June 6, 2012, 9:45 [IST]

After being lampooned by the media and individuals over economic growth, the government still seems non hesitant in predicting a buoyant trend for economic growth.

India's economy will likely grow 7.6 per cent in the fiscal year 2012-13, Kaushik Basu, chief economic adviser in the Finance Ministry, said recently. Now, this is is in stark contrast to what a reputable foreign institution like Morgan Stanley believes.

On Tuesday the global investment bank Morgan Stanley blamed a misguided policy approach focused on consumption for the steep fall in the growth momentum, while scaling down its FY13 growth forecast to 5.8 per cent, the lowest estimate so far.

Earlier, Goldman Sachs said it was cutting its gross domestic product forecast to 6.6 percent from 7.2 percent for the fiscal year ending in March 2013, citing a weaker investment outlook on the back of domestic policy uncertainties.

Standard Chartered Bank on the other hand has revised down its growth forecast to 7.1 per cent for FY13 on relatively restrictive monetary policy and inflation at 7.2 per cent.

None of the foreign institutions are as upbeat as Kaushik Basu. In the Union Budget 2012-2013, Pranab Mukherjee too had projected GDP growth at 7.6%. If he presents his next Union Budget for 2013-2014, it would not be a surprise if has to eat a humble pie on the GDP figures.

With the Q4 2012 GDP shocking at 5.3%, the projected GDP for 2012-2013 by the various individuals in the government looks a little far fetched. On the other hand the GDP figures projected to Morgan Stanley of 5.8% for 2012-2013 seems rather downbeat. It's likely that we might get a figure somewhere in between.

Even to achieve that the government will need to shrug the inertia it is suffering from. It will have to push through the reforms agenda, ensure fiscal consolidation, boost exports, control inflation and ensure policies that are conducive to growth.

That's by all means a herculean effort, especially pushing through reforms, given that Mamata has now got a spring in her step, after her recent victory in four of the six civic bodies in West Bengal.

The best thing the government must begin by is giving moderate growth figures and than beating them, which will instill confidence in investors. Projecting an upbeat figure and then coming out with poor figures is likely to seriously damage the government's credibility.

In any case things do not look hunky dory at the moment and the government will have to get its act together to achieve GDP figures that are close to 7%.

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