Growth pegged at 5.25 p.c.

By Sushma Ramachandran

NEW DELHI, SEPT. 9. In a mid-year review of the economy, the Confederation of Indian Industry (CII) has projected a 5.25 per cent growth for the current fiscal. This is even lower than the revised 5.6 per cent forecast made by the National Council of Applied Economic Research.

The forecast is made on the assumption that industrial growth will remain around the three-per cent mark during the year with services estimated at 6.5 per cent and agricultural output at a ``healthy'' 5 per cent. In addition, with half the year nearly over and few reforms having taken place, there is little scope for a pick-up during the rest of the year, the CII notes.

Even if agriculture performs well, its effect on industry through a demand pull is lagged by four to six months. ``Therefore, we don't expect a good monsoon-driven growth in the secondary sector till the winter harvest, after January 2002.''

The CII also says the forecast can be proved ``delightfully wrong'' if the Government refocuses itself and puts all its energy in pushing and implementing reforms.

Outlining the scenario, it describes the outlook for foreign investment as ``grim'' during 2001-2. The data for April and May adds up to $449 billion indicating that India may not get more than $2.7 billion to $3 billion as FDI.

During 2000-1, it managed to attract FDI worth just $2.3 billion with even Vietnam expected to attract more. As for foreign institutional investors (FIIs), the net inflows accounted for $2.16 billion in 2000-1 while inflows during April-May this year were $922 million.

This could increase in a big way, the CII says, if the Government relaxes the 49 per cent cap on foreign portfolio investment and frees it up altogether.

On the fiscal outlook, the ``State of the Economy'', says the combined fiscal deficit of the Centre and States is rapidly spinning out of control. The Centre's deficit for 2000-1 overshot the target, and will probably be around 5.2 to 5.3 per cent of the GDP the while the States' deficits aggregate five per cent.

Other ``off balance sheet'' items such as the oil pool deficit, losses of State Electricity Boards and public sector losses borne by banks and institutions lift the total deficit to over 11 per cent of the GDP.

High forex reserves

On the plus side, there has been a steady growth of foreign currency reserves, which stood at $44.1 billion as on August 10. Regarding interest rates, the CII does not expect any hardening in the near future, and in fact expects them to gradually move southwards. India's real interest rates are among the highest in the world, one of the reasons being that inflation has consistently been under the six per cent mark.

On the need to revive the stock markets, the CII recommends that instead of re-introducing badla in its old form, the Government must quickly design a safe system for financing margin trading which should not have the negative features of badla.

The Government should recognise that the ban on badla and deferral systems, such as the automated lending and borrowing mechanism at the National Stock Exchange and the borrowing and lending securities scheme at the Bombay Stock Exchange, have led to a liquidity crisis and a huge fall in trading volumes.

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