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New Delhi , April 28

THE National Council of Applied Economic Research (NCAER) has projected the real gross domestic product (GDP) in the current fiscal to grow by 7.2 per cent, against 6.9 per cent during 2004-05 estimated by the Central Statistical Organisation (CSO).

In its quarterly review, released here, the independent think tank of policy research states that this is the first forecast of the Council for 2005-06 and takes into consideration the 2005-06 Budget.

The industry is expected to maintain its momentum, growing at an average of 7.6 per cent, while the performance of the external sector would help in achieving the healthy growth scenario. Higher world prices this year compared to last year would help exports grow even with slower growth in world GDP.

The higher growth in GDP, coupled with better customs collections as the volume of trade rises, suggests that the Government would meet the fiscal deficit target of 4.3 per cent for the current fiscal as set out in the Budget.

The Council contends that higher imports would lead to a higher trade deficit and a higher current account deficit as well and warns that there are downside risks originating particularly from high and uncertain oil prices. Even as inflation is down, it is not out "in view of highly volatile oil prices in the international market", the Council said. An upward revision of petro-prices, which is due, now, might again push the prices of fuel/power upwards.

According to the review, industrial investment intentions are running high and are at nearly double since 1991. Investment demand and capacity expansion seem to be picking up after a lull of nearly nine years. The continued high growth of the capital goods sector and the concomitant surge in imports of capital goods with the machinery and equipment components growing fast, clearly signify the quickening of investment activity.

Stating that corporate balance sheets are now markedly stronger than in the 1990s, the Council said the amount of debt used by a company is down to 1.5 in 2004 from 1.9 in 1995 for the top 200 companies. The fall in interest rates during the last seven to eight years has made this possible.Drawing attention to the state of government finances, it said a great deal hinges on the Central Government's performance in revenue mobilisation. On the face of it, the targeted revenue growth in 2005-06 looks plausible because of continued buoyancy of the industrial sector in general and manufacturing in particular.

In a special feature on Budget, fiscal responsibility and budget management and household savings, the Council said that due to the Budget proposals, household savings might shift in favour of physical savings. Within financial savings, the savings portfolio could tilt in favour of high yield investments (such as provident funds), as compared to low yield investment such as pension policies and infrastructure bonds. More importantly, the Council said, the long-term debt market could be the major sufferer.

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