PM Advisory Panel Concerened Over Fall In Investment.

NEW DELHI: The Prime Minster's Economic Advisory Council is likely to raise concern over the deterioration in India's investment environment while calling for more efforts to reduce the country's dependence on imports in its economic review due to be released on Monday.

The review is expected to peg India's growth at 8.6% for 2010-11, a tad higher than the council's earlier estimate, but in line with the official estimates, a person privy to the report told ET.

The finance ministry's mid-year analysis, released in December, had estimated the 2010-11 growth at 8.75%, plus or minus 0.35%.

The Central Statistics Office has projected a growth of 8.6% in its advance estimates released earlier this month.

The council, chaired by former Reserve Bank of India governor C Rangarajan, is likely to express its unease over rising import dependence while making a pitch for increasing domestic availability of coal, natural gas and minerals.

The concern stems from the government's rising current account deficit.

The council has estimated the current account deficit in the current fiscal at 3% of the gross domestic product (GDP), although it sees the deficit shrink to 2.8% in the next fiscal.

The current account deficit in the first half of 2010-11 stood at 3.7% because of a high growth in imports and a moderation in capital flows.

India's imports rose by 17.6% to $273.6 billion between April 2010 and January 2011 as the economy gained momentum.

A Goldman Sachs report in December 2010 had argued that India could face serious problems because of its strong domestic demand that could lead to a surge in imports.

The report, authored by chief India economist Tushar Poddar, said the country was increasingly relying on short-term inflows to finance its high trade deficit.

India has abundant coal resources but companies are being forced to import the fuel because of domestic policies that prevent optimum utilization of the resources.

Coal mining is largely reserved for state-owned companies, which have not been able to increase investments in the sector. Environmental issues are also delaying investments.

The council is also expected to express concern over the declining foreign direct investment (FDI), a reflection of the worries over the deterioration in the investment environment.

The country received $21 billion of FDI in calendar 2010, down 22% from the previous year.

Stock prices have fallen sharply in the New Year as investors fear a spate of corruption scandals and governance deficit could cripple the government.

High inflation is another issue that may worry the council.

The council expects the annual wholesale price index-based inflation at 7% by March, as against its earlier estimate of 6.5%, provided vegetable prices normalise on fresh supply.

However, the council expects inflation to remain in the comfort zone of 4-5% in the next financial year. The council's estimate of inflation is in line with the central bank's projection.

The government has taken several measures to tame inflation including improving supply of vegetables, such as onions that were seen contributing to the high food inflation.

Finance Minister Pranab Mukherjee has said that the inflation continues to be a challenge while expressing hope that the overall inflation will come down close to the target of 7%.

Source : economictimes.indiatimes.com