Economic Survey paints an optimistic picture - Angel Broking

The Economic Survey of India (ESI) tabled in Parliament, estimates real GDP growth for FY2014 to improve in the range of 6.1% to 6.7% even as the growth estimate for FY2013 has been revised to a moderate 5.0% and it further indicates that the downturn in growth is more or less over. The ESI also estimates headline WPI inflation to decline in the range of 6.2% to 6.6% for FY2013 owing to the moderation in core inflation. In January 2013, inflation moderated to a three year low of 6.62% as core inflation moderated for the fifth straight month to 4.1%.

The Survey highlights the current account deficit as one of the key concerns in the economy and it has acknowledged that there is limited room to increase exports in the near term. The CAD has widened to 4.6% in the first half of the fiscal year as compared to 4.0% in the first half of FY2012 as the trade deficit widened to 10.8% of GDP in the period. We expect it to touch almost 5% for FY2013, so we believe that attracting capital inflows in the economy is pertinent to finance the CAD. In this context, the Survey has rightly observed that long term and stable capital inflows should be accorded priority to minimize the reversal of capital in risk-off phases. At present, the maturity profile of India's external debt continues to be dominated by long-term loans. In the first half of FY2013, long-term external debt stood at US$280.8billion, ie 76.9% of total external debt, while the remaining 23.1% was short-term debt.

Another key concern in the economy is that the savings rate has decelerated dramatically to 30.8% from its peak level of 36.8% in FY2008. The high preference of households for savings in non-productive physical assets like gold is also adding to pressure on the already burgeoning trade and current account deficit and the saving – investment gap has also widened. In this regard, the forthcoming budget can take some steps to boost savings in financial assets, and thus discourage demand for gold, by increasing the tax saving deduction limit in investment instruments such as ELSS, equities, longer-duration fixed deposits, taxfree bonds etc.

The Survey also notes that a higher tax/GDP ratio is desirable to meet fiscal consolidation in the economy by broadening the base rather than increasing marginal tax rates in addition to prioritizing expenditure. It has termed the medium-term fiscal consolidation path of a fiscal deficit of 3% of GDP for FY2017 as credible owing to the recent reforms in diesel prices and efforts at curtailing expenditure.

Source : Equity Bulls

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