GDP

Mukesh Gupta/Reuters A laborer worked inside a steel factory near Jammu, Dec.3, 2012.

A government study is optimistic that the pace of India’s economic growth – now at its slowest in a decade –will speed up. But while it expects gross domestic product to expand up to 6.7% next year, it warned that inflation and a high current account deficit are major concerns.

The document, prepared by India’s finance ministry, looks back at the economic performance of the country over the past year, reviews the government’s recent policy initiatives, and gives recommendations for the coming year.

Under the leadership of Chief Economic Advisor Raghuram Rajan, the report provides clues on the priorities of the finance ministry a day before Finance Minister P. Chidambaram presents the annual budget. The study is released on a yearly basis, a day before the budget is presented.

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Here are a few highlights from this year’s economic survey:

In the year starting April 1, the study expects Indias gross domestic product do expand between 6.1% and 6.7% higher than the 5% growth rate estimated for this year. The study cites the positive impact of a partial recovery in the global economy and recent government policies, including steps to open up foreign investment in sectors like retail and aviation and to deregulate the price of subsidized fuel. But challenges remain. Key obstacles to growth, the survey notes, are poor infrastructure, low growth in agriculture and industrial activities, and the gap between energy supply and demand.

The study says India is on track to meet its fiscal deficit target of 5.3% of GDP this fiscal year, and to narrow it down to 4.8% of GDP next year. The gap between revenue and expenditure surged to 5.8% last year, largely because of slowing economic growth and high subsidy payments on fuel, food and fertilizers. The government has this year curtailed expenditure, and with the increase in diesel prices, expects to bring down the budget gap steadily to 3% of GDP by March 2017

The Indian government expects inflation to ease. The study expects the monthly inflation rate to be between 6.2%-6.6% by the end of March from a year earlier, from 6.62% in January. A lower inflation rate may encourage the Reserve Bank of India to reduce key interest rates. The survey described fighting inflation as a priority,” calling for an increase in food production and for better infrastructure to reduce agricultural waste.

The study recommended curbing imports, mainly of gold, in a bid to reduce India’s current account deficit, which stood at 4.2% of GDP last year and is projected to be at similar levels this year. Steps to raise diesel prices and increase import duties on goods like gold will help bring down the current account deficit next year, the study said.

The study expected agricultural production to decline. The study said allowing more foreign direct investment in retail could help the country’s agricultural sectors through the introduction of new technology and improved infrastructure. The study expects food grain production to slip 3.5% to 250.1 million tons this year from a year earlier. Although the study revealed that agriculture accounted for only 14.1% of GDP in 2011-12, the sector employs over half of the nations population.

The study had a special focus on job creation. saying it expects over half of the people joining the labor force from 2011 to 2030 to be in the 30-49 year age group. It said a priority was to create jobs in manufacturing and services, rather than in construction.

The study said a priority should be to reduce waste in social spending through projects like direct-cash transfers to the poor. Indias spending on social welfare increased from 5.9% of GDP in the year that ended March 31, 2008 to an estimated 7.1% of GDP in the current year.

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