The Prime Minister’s think tank expressed the immediate urgency for implementation of Goods and Services Tax (GST).

As the recovery in the global economic and financial situation is likely to be slow, the challenging task would be to sustain a high growth rate and keep a check on the rising prices and maintain price inflation at 4 to 4.5%. Another challenge is to contain the current account deficit at 2-2.5% of the GDP and also to encourage the flow of external investments into the country. Caliberated withdrawal the fiscal stimulus package and credible expenditure management at this juncture are also a challenge before the government.

The Council’s optimistic projection hinges upon the economic growth in the first half of the year which was higher at 8.9%. In the second half the growth will be somewhat moderate, but enough to achieve 8.6% by the end of the year.

The PM’s EAC estimate of overall GDP growth rate for the year 2010-11 agrees with the CSO Advance Estimate released earlier. However, The Council is optimistic that the growth momentum would continue and in 2011-12 the GDP growth rate would be 9%.

According to the Review of the Economy 2010-11 released by the Chairman of the PM’s EAC, Dr C Rangarajan in New Delhi on Monday has projected that agriculture would grow at 5.4% in 2010-11 which is not surprising given the good monsoon rains and against a base low growth rate of 0.4% in the previous year.

In the current year the wheat output is expected to be better and pulses production is likely to be high at 16.5 million tonne.

However, the Council has been cautious in projecting farm growth at 3% for 2011-12. Greater attention should be paid to agriculture including seed development, management of water and soil fertility and improving the delivery system to farmer, it said.

Industry is expected to growth at 8.!% and is likely to be influenced largely by the possible 8.8% growth in the manufacturing sector and 6.2% growth in mining and quarrying. For the year 2011-12 the industrial growth has been projected at 9.2%.

The expected high growth in the services sector at 9.6% brightens the hope pushing the overall GDP growth rate to 8.6%. For the year 2011-12 the services sector is likely to grow at 10.3%. The rising domestic savings and investment, according to the review are the chief engines of growth.

The investment rate is expected to be 37% in 2010-11 and 37.5% in 2011-12 while domestic savings rate is likely to be over 34% in 2010-11 and 34.7% in 2011-12.

However worrying concern is the current account deficit which is estimated at 3% of the GDP in 2010-11 and 2.8% of the GDP in 2011-12.

The merchandise trade deficit is projected at $132 billion or 7.7% of the GDP in 2010-11 and $151.5 billion or 7.7% of the GDP in 2011-12. Invisibles trade surplus is projected at $81.3 billion or 4.8% of the GDP in 2010-11 and $95.7 billion or 4.8% of the GDP in 2011-12.

According to PM’s EAC capital flows can be readily absorbed by the financing needs of the high growth of the Indian economy. The pace of infrastructure creation has to be stepped up with renewed focus on the power sector. The target for additional power generation of 55,000 MW has to achieved for sustaining high growth rate.

Against the level of $47.8 billion in 2009-10, the capital inflow is projected to be $64.6 billion in 2010-11 and $76 billion for 2011-12. The accretion to reserves is likely to decline in 2010-11 to $12.1 billion from $13.4 billion in 2009-10. However, the PM’s EAC hopes that it would rise to $20.2 billion in 2011-12. FDI flow in 2010-11 is likely to be $93 million.

The price inflation rate is projected at 7% by March 2011. The challenge is to keep the food prices under check which had risen sharply on account of high vegetable prices. Manufactured goods inflation has remained low. Considerable care from the policy side has, however, to be taken to ensure that manufactured goods price inflation remain below 5% in 2011-12. Monetary and fiscal policies and supply side management should focus on keeping prices under check, the review said.

Total central government’s revenue has registered an increase of 62.9% in April-December, 2010 over the corresponding period in the previous year. The capital expenditure has also registered a sharp increase of 64.6% in April-December, 2010. Hence the fiscal deficit outcome for 2010-11 could be marginally better than the budget estimates. The budgeted level of fiscal deficit and revenue deficit are still beyond the comfort zone.

According to PM’s EAC current year fiscal adjustment may not be a problem. The challenge is of adhering to the Finance Commission’s targets with credible expenditure management.