Economic Advisory Council’s Projection for FY 14 and reality

The Prime Minister’s economic advisory council has come out with an extremely positive outlook projection for the Indian economy for FY 14. The salient paints are:
Economic growth rate will be 6.4%
Agriculture sector is expected to grow 3.5%
Manufacturing sector is expected to grow 4.0%
Services sector is expected to grow 7.7%
Wholesale Price Index is expected to be 6%
Primary Food inflation to be around 8%
Fuel inflation to be around 11%
Inflation in manufactured goods to be around 4%
Current Account deficit to be around 100 billion $
Merchandise trade deficit is expected to be 213 billion (9.9% of FY 14 GDP)
Net invisible earnings at $ 113 billion (5.3% of FY 14 GDP)
Fixed deficit 542, 499 crore for FY 14
The chairman Mr. C. Rangarajan gave this projection to a press conference. There are 2 ways in which the projections can be presented.
Project everything to be lower than what is achievable and claim that all targets are not only met but exceeded
Project everything to be higher than what is achievable and find enough reasons to why this was not achieved. One could blame the inadequate monsoon global economic slowdown, unexpected change in gold, coal and oil prices upward so on and so forth.
For example the Current Account deficit announced for FY 13 turns out to be $ 191 billion dollars. For FY 14, it is projected to be $ 100 billion. For record purposes FY 11 the deficit was 130 billion, for FY 12, it was 185 billion. Reducing it to $ 100 billion for FY 14 will be a miracle. How this will be achieved was not part of the press conference. Either the import must drop from the current levels and or the export should go up a lot or some part of both. We need to wait and see.
Achieving 6.4 percent economic growth is an extremely ambitious target Mr. Pranab Mukherjee predicted 7.6% ± 0.25% for FY 13 and it turned out to be 4.96%. Let us look at facts:
For FY 12 our GDP [(output) based on 2004-05] was Rs. 5, 243582 lakh crores
For FY 13 our GDP was Rs. 5.503476 lakh crores
Projected for FY 14 GDP should be
5.503476 (1+.064). Rs 5.855698 lakh crore
In order to get there, the PMEAC has predicted manufacturing sector to grow by 4%. The following is the growth rate in the manufacturing sector for the last 6 months
Aug’ 12 2.4%
Sept’ 12 -1.6%
Oct’ 12 9.9%
Nov’ 12 -0.6%
Dec’ 12 -0.7%
Jan’ 13 2.7%
Based on this data, is it realistic to expect 4% for FY 14. Again we need to wait and watch.
IMF and World Bank have revised their global economic growth rate for FY14 as compared to FY 13.
China the big growth engine’s growth is also tapering off to 7.5 percent. In this situation achieving a higher growth rate for FY 14, given FY 13 at 4.96% is tall order.
Let us hope that all these targets are achieved. While these targets are not impossible to achieve, our leaders should stay on course and implement bold policies. They know what to do but the political realities will keep their hands tied.

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