India lowered its GDP growth projection for the current year to 7-7.5 per cent against 8.1-8.5 per cent forecast earlier and said that while the macro economy is stable, the real economy needs policy attention.
The downgrade follows India's GDP growth in the first half of current year, from April to September, slowing to 7.2 per cent from 7.5 per cent in the corresponding period last year on the back of weak exports and impact of deficient rains on the agriculture sector.
Nominal growth during this period slowed substantially from 13.5 per cent to 7.4 per cent. This sharp and continuing decline is a cause for concern, the Government said in its mid-year review of the economy that Union Finance Minister Arun Jaitley tabled in Parliament.
One of red flags it raised is on impact of the slowdown on India's debt levels. India benefited favourably for past 10-12 years when nominal GDP growth exceeded government's cost of borrowing, which, it said, has now reversed and the wedge stands at about 2 per cent. “Unless India starts running primary surpluses, the debt-to-GDP ratio will cease to decline as it has for the last decade.”
But the Review cautioned that the fiscal outlook for next year, 2016-17, looks challenging and government will need to reassess its commitment to cut the deficit further by 0.4 per cent of GDP. The assessment is crucial, given rating agencies have said India's sovereign rating is conditional on the fiscal consolidation not straying from commitments.
The Review also said the dismal performance of exports is turning out to be a drag on the GDP. Exports in the first half of the year have declined (-)17.4 per cent.
Current Affairs: 18th December, 2015 Important Days in November and December Current Affairs bullet points Round up 7th to 14th December, 2015 Current Affairs Round up November, 2015.
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