Plan panel sees 6.3% growth in GDP this year

The Planning Commission on Tuesday presented a cautious preview of the mid-term appraisal of the 11th Plan.

For 2009-10, GDP growth is seen at 6.3%, down from 6.7% in 2008-09, 9% in 2007-08, and 9.7% in 2006-07. In the worst case scenario, GDP growth could even fall to 5.5%, the commission said.

The panel spelt out the need for reducing subsidies on fertilisers, kerosene and LPG. For bringing down the steep fiscal deficit, it recommended good use of revenue raised from the disinvestment programme.

After a full Planning Commission meeting headed by Prime Minister Manmohan Singh, the consensus was that any projection of GDP growth for 2009-10 would be highly tentative at this stage since very little hard information is available on production data except for the industrial sector in the quarter ended June.

Besides the PM and Planning Commission deputy chairman Montek Singh Ahluwalia, the meeting was attended by finance minister Pranab Mukherjee, home minister P Chidambaram, agriculture minister Sharad Pawar, power minister Sushil Kumar Shinde and railways minister Mamata Banerjee.

Briefing the media, Ahluwalia said growth during the current and the next quarter may fall from that registered during the June quarter, mainly due to the prevailing drought conditions. But, the economy is expected to turn around in the last quarter. GDP growth during the first quarter was at 6.1%.

The projection of 6.3% GDP growth is based on the “base case assumption that agricultural GDP will fall by 2.5%,” Ahluwalia said. However, if the extent of crop losses is more than projected, “the impact will be more pronounced.” The worst case scenario (5.%% growth) assumes a 6% drop in farm sector GDP.

The Planning Commission is of the view that 2009-10 will end with inflation above the comfort zone of 4-5%. In the past several weeks, inflation based on the Wholesale Price Index (WPI) has been negative.

On fiscal deficit and managing government finances, the Economic Outlook said, “Maintaining fiscal credibility is clearly essential if we want to retain investor confidence and leave room for private investment to expand.”

“There is an overwhelming need on economic grounds to reduce some untargeted subsidies, which are known to generate large leakages such as on account of under-pricing of kerosene and LPG,” the panel said.

On the disinvestments programme, it said, “resources thus raised could be used to meet plan expenditure reducing the burden on the fiscal deficit.”

Looking ahead, the panel said the economy may recover to 8% in 2010-11 and perhaps 9% in 2011-12, thus averaging an annual GDP growth of 7.8% during the 11th Plan period as against the target of 9%. This, of course, is on the assumption of normal monsoons in the next two fiscals.

The mid-term review of the 11th Plan is expected to be ready by the end of 2009.