BUSINESS

Growth target may be set at 7%

By Sidhartha & Aditi Phadnis in New Delhi
February 22, 2005 10:05 IST

The government is expected to target a gross domestic product growth of around 7 per cent during 2005-06 and fix the fiscal deficit and revenue deficit targets in line with the Fiscal Reforms and Budget Management Act.

Government sources told Business Standard that achieving 8 per cent growth would be difficult, with the manufacturing and the services sectors required to grow above 10 per cent on the back of two high-growth years. The government is budgeting for a moderate agriculture growth during 2005-06.

Finance Minister P Chidambaram had set a nominal growth rate target of 12.6 per cent for the current fiscal when he presented the Budget in July, while inflation was assumed at 4-5 per cent.

According to CSO estimates, deficient rainfall has resulted in 1.1 per cent agricultural growth and the advance estimates put GDP growth rate at 6.9 per cent.

The Centre may end the year with a higher than the budgeted revenue deficit of Rs 76,171 crore (Rs 761.71 billion) or 2.5 per cent of GDP. But it may not find itself on a sticky wicket as it is mandated to reduce revenue deficit by 0.5 per cent annually under the FRBM Act.

As per the revised estimates for 2003-04, the Centre's revenue deficit was estimated at 3.6 per cent of GDP.

Similarly, the FRBM law mandates the government to reduce fiscal deficit to 4.1 per cent during 2005-06 against the Budget target of 4.4 per cent for the current fiscal.

Despite the shortfall in revenue during the current fiscal, the finance ministry hopes to meet the fiscal deficit target through expenditure squeeze.
Sidhartha & Aditi Phadnis in New Delhi
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