The Hindu Business Line : NCAER projects 10th Plan GDP growth at 6.7 pc

THE National Council of Applied Economic Research (NCAER) has forecast the gross domestic product (GDP) growth during the Tenth Plan period (2002-07) to average 6.7 per cent as against targeted growth of 8.1 per cent by the Planning Commission.

In its latest Quarterly Review of the Economy, the premier think-tank from the Capital, contends that in the first two years of the Plan, the average growth of real GDP has been 6.1 per cent and it is expected that in the remaining three years it would be 7.1 per cent.

The principal departure from the growth trajectory envisaged in the Tenth Plan is the slower-than-planned growth of agriculture. In the first two years of the Tenth Plan, it grew by 2 per cent per annum and it is expected to continue to grow at around that rate. The Tenth Plan, however, had targeted agriculture growth at 4 per cent per annum.

The industrial sector grew by 6.6 per cent in first two years, and is projected to grow at an average rate of 7.0 per cent in the Tenth Plan period. Similarly, the services sector, which grew by 7.9 per cent in first two years, is expected to continue its growth trajectory, and to register an average annual growth of 8.5 per cent.

Inflation in fiscal 2004-05 is expected to be 5.9 per cent and in the medium term it is expected to come down to 4.9 per cent. The linkage with the exchange rate changes and international prices (especially crude prices) exerts an upward pressure on prices.

ssuming no major tax reform this year and an outgo of Rs 10,000 crore towards implementing the National Common Minimum Programme, the fiscal deficit of the Centre as a ratio to GDP (market prices) is projected at 4.9 per cent this year.

The average fiscal deficit for 2004-05 to 2008-09 is likely to be at 4.6 per cent of GDP. In order to achieve targets laid out in FRBM rules, further fiscal reforms would be essential, it counselled.

Merchandise exports in the medium term are projected to grow at annual rate of 13.1 per cent in rupee terms and imports are projected to rise at 16.5 per cent. The current account balance is expected to be in surplus of the order of 3 per cent of GDP.

The growth of service sector exports is turning the tide on current account. Strong global demand for services from Indian companies is critical for this result.

The current account surplus, however, also points to the failure to achieve acceleration in growth by increasing investment. There is clearly need for reforms that would alter the investment scenario to achieve significant acceleration in growth, the Council noted.

In spite of an adverse impact of the monsoon on agricultural growth, the performance of income tax, corporation and services tax is in line with the targets. Despite the reduction in excise and customs duty to contain inflation, the collection so far is not bad. But revenue performance could be much better if tax compliance improves further.

On public finances, the Council said that in the first five months of this fiscal, the revenue deficit (at 82.6 per cent of the annual amount) is already way above the FRBM target for the first six months of 45 per cent.

The fiscal deficit is still manageable at 38.2 per cent and with the second instalment of advance tax, it could remain below the FRBM mid-year target of 45 per cent.

Non-debt receipts at 29.7 per cent of the annual amount are already way below the mid year target of 40 per cent and, in all probability, likely to be missed.