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India Lowers GDP Growth Goal as Singh Signals Higher Fuel Prices

December 27, 2012

India cut the goal for economic growth in the five years to 2017 and signaled further fuel-price increases to limit subsidies that have stoked a budget deficit.

The nation will seek average annual growth of 8 percent in the period, Prime Minister Manmohan Singh said in a speech to federal and state officials in New Delhi today. That’s lower than an earlier objective of 8.2 percent for the five fiscal years from April 1, 2012.

The revised aim “is still an ambitious target,” Singh said, adding energy in India is underpriced and a “phased” adjustment in tariffs is necessary.

India’s efforts to rival China as the fastest-growing major emerging nation have been hurt by budget and trade deficits and supply bottlenecks that have kept inflation above 7 percent. Singh overhauled policies in mid-September, raising diesel prices and opening the economy to more foreign investment as he struggles to lift growth from last quarter’s 5.3 percent pace.

The rupee, which has weakened 3.3 percent this year, was little changed at 54.8375 per dollar as of 11:58 a.m. local time. The BSE India Sensitive Index of stocks rose 0.1 percent.

The Finance Ministry forecasts a 5.7 percent to 5.9 percent rise in gross domestic product in the 12 months that began April 1, the weakest in a decade.

The government has set up a panel to try and speed up infrastructure projects in a bid to revive Asia’s third-largest economy. Yesterday, it extended a policy providing subsidized credit to some exporters through the 12 months to March 2014 to tackle the trade deficit.

Twin Deficits

Finance Minister Palaniappan Chidambaram has pledged to narrow the budget shortfall to 5.3 percent of GDP this fiscal year, from 5.8 percent in 2011-2012. Last year’s gap was the widest among the largest emerging markets, fanned by a subsidy program ranging from diesel to fertilizers.

“Subsidies should be well designed and effectively targeted and the total volume must be kept within limits of fiscal sustainability,” Singh said as he outlined objectives for India’s 12th five-year plan.

The trade deficit was $175.5 billion in January-to-November compared with $146.9 billion in the same period a year earlier, Commerce Minister Anand Sharma said yesterday.

The twin deficits contributed to warnings from Standard & Poor’s and Fitch Ratings earlier this year that they may strip the nation of its investment-grade credit rating.

To contact the reporters on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net; Tushar Dhara in New Delhi at tdhara1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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