Painting a rosy picture of the economy, the mid-year review on Friday projected over 7.0 per cent economic growth this fiscal backed by over 8.0 per cent jump in farm output.

"Assuming more than 8.0 per cent and 6.0 per cent growth in agriculture and industry respectively, and a reasonably good performance by the services sector, the overall growth in real GDP can be expected to exceed 7.0 per cent in 2003-04," finance secretary D C Gupta said, releasing the mid-year review in New Delhi.

The growth projection made in the review is more optimistic than that of the Reserve Bank, which pegged GDP growth at 6.5-7 per cent in its busy season Credit Policy.
 
The Confederation of Indian Industry and NCAER had forecast GDP growth of over 7.1 per cent.

"The outlook for a sharp increase in GDP growth compared with the previous year appears to be bright. As a consequence of an abundant monsoon, the first advanced estimate suggests a growth of 20 per cent in kharif foodgrain production, which is likely to surpass its previous high of 220 million tonnes achieved in 2001-02," Gupta said.

However, the review said it was essential to "preserve" the currently strong macroeconomic fundamentals through greater fiscal consolidation.

"The provisional figures on performance on the fiscal front last financial year, as well as the first half of the current year complement the economic upswing and are more or less on the course charted by the budget," it said.

The mid-year review, an update on the developments of the economy in the first half of 2003-04, puts the fiscal deficit at 52.7 per cent of the current year's budget estimate as compared to 42.6 per cent in the previous year.

It also fulfills one of the responsibilities enjoined upon the government by the Fiscal Responsibility and Budget Management Act, 2003, and is the second review of the trends in the economy.

The review said the monitoring committee under the medium term fiscal reform has approved the fiscal reforms programmes of 23 states.

Incentive grants worth Rs 3,278.20 crore (Rs 32.78 billion) were released from the incentive fund till September end for supporting state reforms.

Gross tax revenue upto September this year was put at Rs 1.16 trillion, while total expenditure was Rs 2.17 trillion.

The gross tax revenue represented 35 per cent of budget estimates while total expenditure constituted 49.5 per cent of budget estimates.

Government's expenditures stood at Rs 2,17,000 crore (Rs 2,170 billion) in the first half of 2003-04, constituting 49.5 per cent of the budgeted estimates. This was higher than 39.6 per cent in the last year.

"However, these two years are not comparable owing to the one-time expenditure on account of state debt swap scheme this year," Gupta said.

After six months, the government's gross borrowing stood at Rs 94,434 crore (Rs 944.34 billion) which included Rs 14,434 crore (Rs 144.34 billion) through buyback of illiquid securities, it said.

"The arrival of kharif crop coupled with prudent fiscal and monetary stance, is expected to dampen inflation in the coming months. Annual inflation in 2003-04 is likely to be around 4.0 per cent," the review said.

Inflation, after declining from its peak level in April to below 4.0 per cent in August, rose again in September, mainly on account of higher energy prices.

After experiencing a surplus for six successive quarters, the review said, "Current account of the balance of payments turned into a deficit in the first quarter of 2003-04."

"However, the deficit of $1.2 billion was more than made up by a capital account surplus of $6.1 billion," it added.

The current account deficit was due to surge in imports, reflecting sharp revival in industrial activity, it said.

Capital flows continue to be robust with portfolio investment being the largest contributor.

"The country's forex reserves were close to $93 billion at the end of October," it said.

Commenting on the reforms process, the review said the financial sector reforms have been maintained with commencement of interest rate derivatives, while a bill (Securities Contracts Regulation Amendment Bill) was introduced in August to facilitate demutualisation and corporatisation of stock exchanges.

The Securities and Exchange Board of India has initiated the process of bringing corporate bond market into modern standards of transparency, anonymity and high quality disclosures.

"Capital markets have been buoyant in the first six months of the year, with major indices showing an increase of about 66 per cent," it said.

Significant achievements have been made in roads, electricity and telecom sectors. The implementation of National Highway development Programme is largely on schedule.

Passage of Electricity Act will place the sector on a sound market-oriented footing while the one-time settlement of dues of state electricity boards was implemented.

In the telecom sector, the review said, "Reforms have sharply increased competition and choice in the sector. The cellular mobile tariff for 400 minutes per month dropped by 59 per cent between December 2000 and June 2003."

There was an unprecedented addition of 1 crore (10 million) subscribers in the first half of this fiscal, which was five times faster than that observed in the same period last fiscal.

"There is an increasing shift among subscribers away from fixed lines to cellular and WLL services," it added.