New Delhi: The government today lowered the economic growth forecast for the current fiscal to 7-7.5 per cent from previously projected 8.1-8.5 per cent mainly because of lower agricultural output due to deficit rains. The GDP growth, projected in the Mid-Year Economic Review of the Economy tabled in Parliament, is broadly in line with 7.4 per cent growth projection of the Reserve Bank of India.
Retail inflation, it said, is likely to be within the target of about 6 per cent. It said the decline in nominal GDP growth will pose a challenge for meeting the fiscal deficit target of 3.9 per cent of GDP. “Slower than anticipated nominal GDP growth will itself raise the deficit target by 0.2 per cent of GDP,” it said, adding that “the anticipated shortfall in disinvestment receipts, owing to adverse market conditions for a portfolio that largely comprises commodity stocks, will add to the challenge.”
While tax collections have been buoyant relative to the growth, “indirect taxes have fared better than direct taxes, probably because corporate profits have not been buoyant, reflecting the slowing nominal GDP growth,” it said.
The report said the government is continuously monitoring the emerging economic scenario and is taking measures for reviving economy. “Government is committed to carry the process of fiscal consolidation to its logical end. Fiscal consolidation has been designed with judicious mix of rationalisation of total expenditure as percentage of GDP and improvement in gross tax revenues as a percentage of GDP,” it said.
The economy, it said has made considerable progress, “but challenges remain”. On the positive side, macroeconomic stability has improved considerably, cushioning the economy against possible adverse external shocks.
“Meanwhile, the real economy is showing signs of recovery. At the same time, the improvement in growth has been uneven, powered only by private consumption and public investment,” the Finance Ministry document said.
Talking about asset quality of banks, the report said their gross Non Performing Assets, expecially of public sector banks (PSBs) have shown an increase during recent years. NPAs of the banking sector increased to 5.14 per cent and those of PSBs have risen to 6.21 per cent as on September-2015 end.
“The increase in NPAs is due to less than adequate pick up in domestic growth, slowdown in the global economy and negative spillovers from global financial markets,” it said. It further said PSBs market valuations is estimated to improve significantly due to “far-reaching governance reforms”, tight NPA management, significant operating improvements, and capital infusion.
On exports which are on declining for 12 months in a row, the Finance Ministry said: “We expect some improvement next year”.