Battling a host of problems on the economic front such as price rise, inflation and sluggish growth amid an yet-to-be-tackled global slowdown, the Indian government yesterday lowered the growth forecast for the current financial year to 5.7 per cent, down from its March projection of 7.6 per cent.

　　However, it is on track to meet the fiscal deficit target of 5.3 per cent, the government said in its mid-year economic review tabled in Parliament.

　　Growth has wilted in successive quarters due to what critics describe as “policy paralysis” as well as protracted uncertainties in the global economy. The country’s gross domestic product (GDP) has expanded by just 5.4 per cent in the first half of financial year 2012-13.

　　The review prepared by the finance ministry said growth is likely to improve in the second half of the current financial year and it would stay between 5.7 and 5.9 per cent. “It should be possible for the economy to improve the overall growth rate of GDP to around 5.7 per cent to 5.9 per cent for the year 2012-13,” it said.

　　To achieve 5.7-5.9 per cent growth, the review said: “Both fiscal and monetary policy, however, would need to be supportive to sustain investor confidence. The government will also have to address the concerns relating to structural supply side bottlenecks."

　　“The slowdown in growth in advanced economies and near recessionary conditions prevailing in Europe resulted not only in lower growth of international trade but also lower capital flows,” it said.

　　Noting that rainfall in the monsoon season of 2012-13 has been below normal, particularly in the key months of June and July, the review said this has affected sowing and resulted in a lower growth rate of agriculture and allied sectors.

　　High cost of borrowings due to the tight monetary policy of the Reserve Bank of India has also negatively affected the economic growth. “The cost of borrowing remains at elevated levels and this has had an impact on investment and growth in the economy, particularly that of the industry sector,” the review said. “Bottlenecks in project implementation have made financing more difficult and investors more cautious,” it said.

　　The chief economic adviser, Raghuram Rajan, has suggested a three-pronged strategy, including a confidence-inducing Budget, to push growth. “We cannot be satisfied with this (5.7-5.9 per cent) rate of growth. So, we are not at the end of set of steps we need to take... we are at the end of the beginning, " Rajan said.

　　“Further steps include a good confidence-inducing budget, speeding up clearance for projects and further steps in capital market reform,” he said. He was briefing reporters after the report was tabled in Parliament.

　　Rajan said growth is likely to improve in the second half to around 6 per cent from 5.4 per cent in the first half (April-September), driven by factors such as improved business confidence, corporate profitability, better industrial output numbers and moderating inflation.

　　“Strengthening of financial infrastructure is important. Improving corporate bond market is also what we need to do,” he said.

　　Answering a question on tax collection, Rajan said low corporate profitability is impacting revenue realisation. “Corporate profit earnings are not growing at pace, it was growing in past. We hope we will start picking up once again and that should add buoyancy. (If) people are not making money as much as they were then clearly it is going to impinge on that kind of revenue,” he said.