New Delhi: Amid worsening global scenario and rising prices, the government on Friday lowered the growth projection for the current fiscal to 7.25-7.75 percent and hoped inflation would moderate to 7 percent by March-end.

"The sharply deteriorating global economic environment has had a dampening effect on India. Compounded with some domestic factors, the global situation has led to a clear slowdown in the growth rate of the Indian economy ...", said the mid-year report card of the economy tabled by Finance Minister Pranab Mukherjee in the Parliament.

The Mid-Year Analysis 2011-12 has lowered the growth projection for the current fiscal to 7.5 percent (plus/minus 0.25 percent) from 9 percent estimated in February. Economy grew by 8.5 percent in 2010-11.

On the prospects for the next fiscal, the analysis said, "The outlook remains mixed". However, given the country's strong fundamentals, it would be possible to get back to the long-run target of 9 percent.

The analysis further said that the overall inflation is likely to decline from this month and moderate to 7 percent by March-end. The headline inflation was 9.73 percent in October.

On the fiscal deficit target of 4.6 percent of the GDP in 2011-12, the government said it will not be easy to meet the target.

"...adhering to the fiscal deficit target of 4.6 percent of GDP is a major challenge," it said adding the government will find it difficult to raise Rs 40,000 crore from disinvestment and Rs 13,000 crore telecom spectrum auction.

Uncertainty on disinvestment receipts and a likely higher subsidy requirement do make it a challenging task to adhere to the overall fiscal deficit target, the Mid-Year Review said, adding that the government is determined to keep overshooting of the fiscal deficit target as minimal as possible.

The analysis has also raised concerns over rising expenditure on account of major subsidies, including oil, food and fertiliser besides higher interest payment.

"Higher growth in expenditure (on major subsidies, interest payment and defence) explains structural problem of government finances which needs to be addressed through policy initiative," it said.

The government, however, expect some revival next year, but the outlook remains mixed. "If Europe slides into proper recession, with all the attendant financial contagion that will no doubt affect other nations, the entire world economy will slowdown and we could also be impacted," it said.

The analysis maintains that with India's strong fundamentals, and if Europe and the US remain stable, it should be possible for the country to achieve 9 percent growth in the long run.

It further said "maintaining the growth momentum in the economy with price stability is one of the biggest policy challenges that India is facing in recent times".

On the tax collection, the government said that although the budget target appears achievable, there are "both upside and downside risks" associated with the prevailing uncertainties in the global economy.

As regards to indirect taxes, the trend so far has been better even after significant duty reduction for crude and petroleum products during the year. There is, however, problem in excise collection mainly on account of moderation in growth of manufacturing sector.

Meeting Rs 40,000-cr disinvestment target a stiff task: Government

Moreover, the government on Friday said that mopping up Rs 40,000 crore through disinvestment is a "stiff task" amid volatility in the capital markets even as it is looking at other options, like buyback of shares by PSUs, to meet the target.

"With the present trend and prevailing scenario in the capital market, achieving the disinvestment target of Rs 40,000 crore during the remaining period of 2011-12 would be a stiff task," said the Mid-Year Analysis, 2011-12, tabled in Parliament.

The government is envisaging mobilising Rs 40,000 crore by selling its stake in public sector undertakings (PSUs) through public offers, but has so far managed to collect only Rs 1,145 crore from Power Finance Corporation's follow-on public offer (FPO).

Given the volatility in the capital market, in the backdrop of the global and domestic economic situation, the government has not come out with any public offer to sell its stake in PSUs, except PFC, this fiscal.

So far this fiscal, receipts from disinvestment and miscellaneous heads are Rs 2,731 crore, as against Rs 2,235 crore in the comparable period last year.

Meanwhile, Finance Secretary R S Gujral said, "We still feel that there is a possibility of it (achieving the target)," and the government is looking at other options, including buyback of shares by PSUs, besides public offerings.

Asked if share buyback by PSUs is also among the options,
Gujral said: "There are options, including buyback. That is one of the options".

The Secretary, however, said the decision on the process of disinvestment would be taken by Finance Minister Pranab Mukherjee in consultation with Department of Disinvestment (DoD).

"It is between Disinvestment Secretary and the Finance Minister. If any of those options require Cabinet approval, the ministry will take it. We are working on it," he said.

According to sources, the DoD has circulated a Cabinet note to seek views of different ministries to sell government equity through buy-back mode in PSUs.

About a dozen cash-rich units, like Coal India, SAIL, NMDC, ONGC and NTPC, have been identified for the purpose, they added.

The Cabinet Committee on Economic Affairs has also approved disinvestments in SAIL, ONGC, HCL, BHEL and NBCC.