Reiterating the buoyant tone underlying the Economic Survey 2013, Chief Economic Advisor Raghuram Rajan said the India story is a great story despite the current slowdown.
"We are batting on a sticky wicket, but the sun will dry out the pitch. We need to be sensible rather than flashy over the top hits. It will be tough, but not impossible," Mr Rajan added. However, he did caution against the double digit retail inflation and the high current account deficit (CAD).
Coming exactly a day before Finance Minister P. Chidambaram is set to present a Budget that could possibly be the most austere in many years, the projected growth for the next fiscal year seems ambitious as the country's GDP (gross domestic product) growth is estimated to hit a decade-low of 5 per cent in the current fiscal year.
The markets reacted positively to the projection and the benchmark Nifty broke above the 5,800 mark in afternoon trade. (Read: Sensex hits day's high)
"I don't think the evidence that there is a bounce is very strong at the moment, and that is a disappointment. But working with 5 per cent (growth) is not unreasonable. The key point is what we are going to do next year," said Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission.
Industry, however, was less optimistic. Kiran Majumdar Shaw, chairman and managing director of Biocon, said, "I am very skeptical about these kind of estimates and forecasts. We have had a number of shots at estimating growth above 5 per cent in the last several quarters, and it hasn't panned out that way. I think the global headwinds are very strong and we don't seem to have any policies that seem to counter these headwinds."
"I think what they are saying about growth next year is slightly optimistic. Please remember we are at 5-5.5 per cent growth," Mohandas Pai, chairman of Manipal Global Education, said.
Jahangir Aziz, chief economist at JPMorgan, struck a moderate note, saying the economy is repairing after the mayhem of policy paralysis and global shocks, but the repairing process is slow and there may only be a modest pickup in growth. JPMorgan estimates the economy to grow at 5.9 per cent in FY14.
Making a strong case for reforms, the Survey said the economic slowdown is a wakeup call for stepping up reforms, adding that the current downturn is more or less over and the economy has started looking up. As an example, the Survey said foreign direct investment in retail allowed by the government can pave the way for investment in new technology and marketing of agricultural produce in India. Fast agricultural growth remains vital for jobs, incomes and food security.
Headline inflation may decline to 6.2-6.6 per cent by March this fiscal, the Survey said, creating room for rate cuts. Lower rates will give investment a boost, the Survey noted. The Reserve Bank of India cut its key policy rate for the first time in nine months in January 2013, but struck a cautious note on further easing as it waits to see how the Budget aims to bring a bloated fiscal deficit under control.
Shubhada Rao, senior president and chief economist at YES Bank, said the Reserve Bank may get some room to cut rates as early as March 19.
"There is an acknowledgement of core inflation coming lower, but the key to inflation expectation is the rising retail inflation, which has remained a concern over the last few months. Inflation pressures are on the supply side and we need a complimentary role from both the fiscal and the Reserve Bank side," Ms Rao added.
India's FY13 fiscal deficit is likely to be contained at 5.3 per cent of GDP despite a significant shortfall in revenue, the Survey said, adding that the widening of the tax base and prioritizing government expenditure will check the deficit.
Mr Chidambaram has repeatedly pledged to lower the deficit to 5.3 per cent of GDP this fiscal year and 4.8 per cent in 2013-14. New Delhi missed its fiscal deficit target of 4.6 per cent of GDP in 2011-12 by 1.2 percentage point because of over-spending on social welfare and subsidies, prompting credit rating agencies to threaten a downgrade that would make India the first of the BRICS emerging economies to lose its investment-grade status.
The Survey noted that addressing the fiscal risk of fuel subsidy is critical for fiscal consolidation and has suggested hiking diesel and cooking gas (LPG) prices to ease the government's subsidy burden.
"Domestic prices of petroleum products, particularly diesel and LPG need to be raised in line with the prices prevailing in international markets," the Survey said.
It also cautioned against the widening trade and CAD, and said curbing gold imports could contain the CAD.
India's CAD hit an all-time high of 5.4 per cent of GDP in the July-September period due to slowing exports and heavy oil and gold imports. The gap is expected to widen further in the subsequent quarter, data for which is due in March.
Slower growth has hurt the tax mop-up this fiscal year, which is significantly lower than the Budget target, the Survey has found. (Read: Highlights of the Economic Survey)
The annual report this year was prepared by Mr Rajan, a former chief economist to the International Monetary Fund (IMF). (Read: Top 10 facts in the Economic Survey).
The Survey, an official assessment of the country's economy, serves as a guidebook for the budget estimates for the following financial year.
With inputs from agencies