The participating economists were also asked for their views on the likely stance of Reserve Bank of India (RBI) in the forthcoming monetary policy due on April 1, 2014. A majority of respondents said that the Central Bank would keep rates unchanged in the policy announcement on April 1, 2014. However, they added that the Bank will continue its close vigil on inflation numbers. The current moderation in WPI & CPI is largely due to a drop in food prices. RBI would closely monitor core inflation numbers which still remain high.
median forecast for fiscal deficit as a percent of GDP stands at 4.4%
for 2014-15. This is higher than the 4.1% estimate announced in the
interim budget recently. The subsidy burden continues to be a
bothering factor and can lead to fiscal slippages according to the
economists polled by FICCI.
In fact, majority of participating economists in the survey felt that the government was able to lower the deficit in 2013-14 due to a sizeable reduction in planned expenditure, rolling over of subsidy payments and a higher amount of dividend payments recovered from public sector enterprises. They indicated that there has hardly been any improvement on the revenue side.
The participating economists were of the view that there is a pressing need to get the fiscal house in order and we should move back to pre-financial crisis deficit levels with utmost urgency. This should be done by laying focus on the revenue side.
The target should be to eliminate the revenue deficit. India's
subsidy burden has ballooned considerably in the past few years and
it is imperative that we take a firm stand and restrict unproductive
subsidies. The government must also allow market forces to play a
fuller role in determining the price of fuel products in
With regard to the external sector, survey results indicated CAD as % of GDP to remain in the comfort zone at 2.2% in 2014-15.
The Rupee value is projected at 61.0 against the US dollar by end March 2015. The expected range is 57.5 (minimum) to 65 (maximum). Rupee value has been floating in a stable range of 61-62 to a dollar since mid-September 2013.
On the prospects for the industrial sector, respondents were of the view that reviving growth is an absolute imperative particularly for generating more jobs. The respondents cited high cost of borrowing and delays in government approvals as the key reasons hindering investments.
The respondents felt that higher industrial growth can be achieved by getting the investment cycle back on track. It was mentioned that the government should seriously work towards debottlenecking sectors like mining that is impacted by slow pace of environment / forest clearances. What is also needed is creation of a stable and transparent policy framework conducive for businesses.
Views of the participating economists on Consumer Price Index (CPI) as the new policy anchor were somewhat divided. While one set of respondents felt that CPI is certainly a good indicator, the other set were of the opinion that monetary policy decision undertaken on the basis of a single parameter may not be a correct approach.
Those in favor of retail inflation as a policy anchor pointed out that CPI is preferred over Wholesale Price Index (WPI) as the former reflects demand side pressures better. Also, the services sector which has a share of about 60 per cent in India's GDP is duly reflected in the CPI. The services sector carries a weight of about 26 per cent in CPI and includes basic services like healthcare, entertainment, education.
The same is not covered under WPI. In addition a higher weightage
is given to food and fuel components which form a major proportion of
consumption basket in India. Under WPI the highest weight is assigned
to manufacturing sector, which is about 65 per cent in the overall
Contrary to above, a group of respondents felt that the new CPI is a fairly new series available only since 2011 and hence does not adequately portray the underlying trends. It was also mentioned that a multiple indicator approach should be used to guide monetary policy as recent experience suggests that focusing narrowly on a single variable is not justified.
We could be ignoring warning signs from other variables like GDP growth, asset prices, exchange rates and term structure of interest rates, which are as important indicators to maintain economic and financial stability.