Few takers for Rangarajan's optimism on Indian economy

India will grow at 5.3 per cent in the current fiscal year, according to the Economic Review of the Prime Minister's Economic Advisory Council (PMEAC). The figure has been revised down from 6.5 per cent, and is a number that many economists consider debatable.

Many economists are pegging growth at somewhere close to 4 per cent.

According to C. Rangarajan, Chairman of the PMEAC, growth could pick up in the second half of the year, although many economists suggest that the pain is likely to last much longer.

He is confident that the current account deficit (CAD) will be down at $70 billion (3.8 per cent) of GDP, from an estimated $88.2 billion in 2012/13. In fact, other members of the PMEAC peg CAD at $60 billion - a target that can only be achieved if India substantially reduces its gold and oil import bills.

Between 2010/11 and 2012/13, the combined impact of higher net oil and gold imports on the CAD was almost $57 billion or 3 per cent of GDP.

Two of Rangarajan's statements give us an indication of what Reserve Bank of India Governor Raghuram Rajan could do in the upcoming monetary policy.

Rangarajan said the current monetary policy will continue as inflation continues to be uncomfortably high, and that containing the fiscal deficit would be a challenge, laying the ground for further tightening or maintaining a status quo in the policy slated for later this month.

The Centre's budgeted fiscal deficit is estimated at 4.8 per cent of GDP in 2013/14, against an estimated 4.9 per cent in 2012/13. The fiscal deficit for the first four months of the current financial year has already reached 62.8 per cent of the budgetary provision for the full financial year, and the expenditure on major subsidies has reached 51.3 per cent of the provision.

India's subsidy bill is nowhere close to being tapered - the Food Security Bill alone adds an additional Rs 15,000 cr - and that's a conservative government estimate. Add to that huge dole-outs in fuel and fertiliser subsidy, which the government is unlikely to touch in an election year.

Revised growth estimates also mean lower tax revenues, and industry is still wary of pushing through with any major investments.

"However, that is not to undermine the need for continued policy intervention to revive growth," the Confederation of Indian Industry (CII) said in a press release. "While the CCI's action on expediting the clearances is appreciable, there is further need for ensuring the fast implementation of the cleared projects by removing the remaining procedural bottlenecks."

The release indicates that while clearances from Cabinet Committee on Investment have come through, those projects are yet to take off - and that's the ennui that Rangarajan's economic review could not shake off.