Finance Minister P. Chidambaram

Incurable Optimist

Was Finance Minister P. Chidambaram's growth projection in his latest Budget too rosy? The evidence of the last two years seems to suggest so.

By any measure, Finance Minister P. Chidambaram can be called an optimist. Last month when he presented the interim Budget of the United Progressive Alliance (UPA) government, he not only praised his government for its past performance, but also painted a rosy picture for the future. However, the estimates he has given on several fronts - gross domestic product (GDP) growth, tax revenues and more - key components of the rosy picture he painted, are now being increasingly regarded with suspicion. For a start, doubts about Chidambaram's projections come from the downward revision of growth estimates in recent years.

The advance GDP growth estimate for 2012/13, for instance, was five per cent, but the first revised estimate brought the figure down by 50 basis points to 4.5 per cent. The year before that, 2011/12, saw the GDP estimate being revised twice both times lower than the advance estimate. "The downward revision of GDP estimates is a reason to worry. It seems the speed of (economic) recovery was overstated," says D.K. Joshi, Chief Economist at ratings agency Crisil.

Other economists are equally sceptical about the finance minister's advance estimate of GDP which, for 2013/14, has been pegged at 4.9 per cent. Discussing the future, Shubhada Rao, Chief Economist at YES Bank, adds: "Assumptions on growth in tax collections and GDP are optimistic and may not eventually pan out. We expect GDP growth in 2014/15 to remain in the range of 5.2 to 5.6 per cent as recovery in real growth is very likely to be moderate."