Contrary to Finance Minister Pranab Mukherjee's rosy picture of the economy
presented in the Budget
for next financial image, some economists feel that growth projections are a bit too optimistic, and expect the economy to grow only at 8.2-8.3 per cent.
Such a low growth could also have the potential to distort the Budget estimates for the financial year, particularly those pertaining to fiscal deficit, which is based on revenue
projections based on high growth of nine per cent and above, they argued.
"Despite the strong performance of the economy in 2010-11, the outlook for 2011-12 is clouded by stubborn and persistently high inflation, and rising external risks. The budget factors in a GDP (gross domestic product) growth target of nine per cent, which is on the optimistic side," said Dharmakirti Joshi, chief economist, Crisil.
Crisil expects GDP growth to moderate to 8.3 per cent in 2011-12, while the FM had projected the same to be above nine per cent.
Chetan Ahya of Morgan Stanley Asia (Singapore) and Tanvee Gupta Jain of Morgan Stanley India committed to their pre-budget projections of growth, stating that the Budget was largely a neutral event and citing the threats of inflation and low capital expansion by companies. "We remain concerned about these two issues and continue to see downside risks to our GDP growth estimate of 8.2 per cent for fiscal 2012," Ahya said.
By lowering the fiscal deficit target to 4.6 per cent in 2011-12 from 5.1 per cent in 2010-11, the Budget reiterates its commitment towards medium-term fiscal consolidation, and it is not in conflict with the Reserve Bank of India's (RBI) measures to tame inflation, at least in intent. But the issue is how realistic is the target?
"We believe that the fiscal deficit will settle at around five per cent of GDP in 2011-12 - a slippage of 40 basis points - as we expect lower growth, lower tax buoyancy and absence of one-off gains (like 3G)," he said.Courtesy: Mail Today