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Economic Survey Positive on Economy

However, the Economic Survey has warned that the people will face inflationary concerns in the short-term, but economy will power ahead

The Economic Survey, presented in the Parliament by Finance Minister Pranab Mukherjee today, which is the official window to the Indian economy, has predicted that India will again achieve a 9 per cent growth by 2011-12 that will transform it into the world’s fastest-growing economy within a span of four years.

This will be made possible, according to the Survey due to the strong current fundamentals of the economy as well as the reforms intent expressed by the government.

The Survey has indicated that the recent past has seen the economy recover and that this has been broad-based. However, since the nature of the recovery is still considered to be fragile there is a considerable downside risk. Still, the recovery has been good enough to gradually roll-back the stimulus measures.

Recovery was clearly evident from the second quarter of 2009-10 as the economy powered to a 7.9 per cent growth rate on a year-on-year basis. This growth has been managed despite the agricultural sector faring poorly with a decline of 0.2 per cent.

However, the document has warned that on inflation, especially food prices (food price inflation is at 18%), things will get worse over the next few months before they start getting better. 

While the recommendations of the Survey are non-binding, Indian corporates have a reason to worry as it has recommended that stimulus measures should be gradually rolled back.

Considering that global markets are still not fully recovered, the Survey favoured continuing the stimulus measures for exporters. Indian exports have been falling continuously since October, 2008 and turned positive in November, 2009. The Survey felt there was a need for a prop for the sector for some more time.

The Survey has patted the backs of the policymakers as the measures that they took to fight the recession have succeeded across-the-board and that is why the recovery is well-founded since there has been a pick-up in merchandise exports, capital flows and non-bank food credit.

What is more, even the adverse effects of natural calamities, in the form of the deficient rainfall, has been contained to a large extent. The proof is in the expectation that the rabi season will be better-than-average.  

Among some of the positives that the Survey has satisfactorily noted are the gross domestic savings as a percentage of GDP  reaching 32.5 per cent in 2008-09. At the same time, gross domestic capital formation reached 34.9 per cent.

Highlights (Read Summary of Economic Survey)

Economy posted a remarkable recovery; expected to grow at 7.2 per cent in 2009-10 against 6.7 per cent in 2008-09. Survey hopes the Indian GDP can be expected to grow around 8.5+/- 0.25 per cent, with a full recovery, breaching the 9 per cent mark in 2011-12.

Manufacturing growth more than doubled to 8.9 per cent in 2009-10 from 3.2 per cent in 2008-09

Survey recognizes food inflation as major concern

Per capita income increased to 5.3 per cent in 2009-10 from 3.7 per cent in 2008-09

Gross Fiscal deficit stands at 6.5 per cent of GDP

Liquidity condition remained comfortable during 2009-10

Bank credit grows by 13.9 per cent on year-on-year basis. Non-food bank credit recorded an increase of 8.7 per cent on financial year basis till January 15, 2010 as per the latest available data

Agricultural credit disbursal exceeds target. At sectoral level, there has been a rebound in the growth rate of investment in the agricultural sector, which grew at 16.5 per cent and 26.0 per cent in 2007-08 and 2008-09 respectively against 1.4 per cent recorded in 2006-07

Investment Deposit Ratio increases to 32.52 per cent 

Balance of Payment situation improves due to surge in capital flows and rise in foreign exchange reserves, which have been accompanied by rupee appreciation

Net capital flows to India at US$ 29.6 billion in April-September 2009 remained higher as compared to US$ 12.0 billion in April-September 2008

During fiscal 2009-10, foreign exchange reserves increased by US$ 31.5 billion from US$ 252.0 billion in end March 2009 to US$ 283.5 billion in end December 2009

Recommendations of the Thirteen Finance Commission needs to be taken on board in shaping the fiscal policy for 2010-11 and in the medium term

Momentum in telecommunication sector continues with monthly additions exceeding 17.6 million connections

Share of central government expenditure on social services including rural development, in total expenditure, plan and non-plan gone up to 19.46 per cent in 2009-10 which was only 10.46 per cent in 2003-04

 Indian economy’s medium-term prospects are strong

Strong economic growth in H2FY10 was mainly on account of the fiscal stimulus

Countdown to stimulus rollback contingent on recovery

Consumption expenditure growth declined in  major way in FY10

Demand for imports is increasing and exports may turn negative

7.2 per cent GDP growth expected in FY10

Government’s final expenditure in FY10 expected to clock 8.2% growth

Private final expenditure in FY10 expected to clock 4.1% growth

Manufacturing sector has acquired renewed momentum 

Services sector growth is expected to be 8.7%

Industrial sector growth is expected to be 8.2%

Agriculture policy must get a makeover for a 4% growth

Inflation must be addressed through monetary measures


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