New Delhi, August 17 (IANS) The Prime Minister's Economic Advisory Council (PMEAC) Friday revised downwards its economic growth projections for the current fiscal to 6.7 percent from the earlier 7.5-8 percent.
The inflation forecast was raised to 6.5-7 percent from an earlier estimate of 5-6 percent for the current fiscal.
"Deficient monsoon is likely to have an adverse impact on the prices of primary food items, especially on those where the ability of government stocks to play a moderating role is not there," the PMEAC, chaired by C. Rangarajan, said in its report.
While farm sector gross domestic product (GDP) is projected to grow at 0.5 percent in FY 13 due to weak monsoon, the manufacturing sector projected to grow at 4.5 per cent.
Mining sector for the year as a whole is expected to grow at 4.4 percent due to growth in the coal and lignite sector, and some recovery in iron ore.
Electricity generation is expected to continue to grow at an average pace of around 8 per cent.
Pointing to structural factors, the PMEAC report says fixed capital formation as a proportion of GDP has fallen from its highest level of 32.9 percent in 2007-08 to 29.5 percent in 2011-12. It is projected to be 30 percent in 2012-13.
Domestic savings rate has declined from 32 percent in 2010-11 to 30.4 percent in 2011-12 and is projected to be at 31.7 percent in 2012-13.
The council sees the economy having a current account deficit of $67.1 billion, equivalent to 3.6 percent of the GDP.
With the trade deficit at $181.1 billion projected to be 9.7 percent of GDP, the council estimated that capital inflows this financial year will be around $73.2 billion.
"This would be adequate to service the projected current account deficit of $67 billion for the year as a whole," says the PMEAC.
The PMEAC has recommended increasing the price of diesel in one or more steps and capping the consumption of subsidised LPG cylinder.
Rangarajan asked the government to open multi-brand retail to foreign investment and raise diesel prices in one or more steps to contain the subsidy bill.
He also recommended a curb on import of gold and improvement in regulatory regime to encourage investment in mutual funds and insurance.
Saying that expanding fiscal imbalance continues to be a major area concern, the PMEAC put the fiscal deficit for the central government at 5.89 percent of GDP in 2011-12, and estimated it at 5.06 percent in 2012-13.
"In some contrast to the centre's finances, the fiscal health of the states is better."
The Reserve Bank of India (RBI) had earlier lowered its growth projection for 2012-13 to 6.5 percent from 7.3 percent estimated earlier.
The economic growth rate had dived to a nine-year low of 6.5 per cent in 2011-12.
