Monday, February 28, 2011

Summary of Economic Survey 2010-11

Robust growth and steady fiscal consolidation have been the hallmark of the Indian economy in the year 2010-11 so far. The growth rate has been 8.6 percent in 2010-11 and is expected to be around 9 percent in the next fiscal year. The growth has been broad based with a rebound in the Agriculture sector which is expected to grow around 5.4 per cent. Manufacturing and Services sector have registered impressive gains. Savings and investment are looking up while exports are rising. However food inflation, higher commodity prices and volatility in global commodity markets have been a cause of concern underscoring the need of fiscal consolidation and stronger reserves. These are some of the high points of the Economic Survey 2010-11, presented by the Finance Minister Shri Pranab Mukherjee in Lok Sabha.

Recognizing the fact that inflation continues to be high even though it has come down markedly from where it was at the start of the fiscal year, the Survey underlined the need to monitor emerging trends in inflation on a sequential monthly basis. In order to check food inflation, it has suggested, the Government should improve the delivery mechanisms by strengthening the institutions and addressing corruption. The survey has pointed out that the inflation is expected to be 1.5 percent higher than what would be if the country was not on the growth curve.

The Survey has observed that a rise in savings and investments and pick up in private consumption has resulted in 9.7 per cent growth of GDP at market prices (constant) in 2010-11.Savings rate has gone up to 33.7 percent while the investment rate is up to 36.5 percent of GDP in 2009-10.

The Survey points out that the agriculture sector growth in the first four years of the 11th Plan (2007-12) is estimated at 2.87 per cent. The foodgrain production went up to 232.1 billion tonnes from 218.1 billion tonnes in 2009-10. With a relatively good monsoon the agriculture-sector is expected to grow at 5.4 per cent during 2010-11. The rising food inflation and the critical role of agriculture underline the need for a larger investment in agriculture enroute to the second green revolution.

The Survey reports that the industrial output growth rate was 8.6 per cent while the manufacturing sector registered a growth rate of 9.1 per cent in 2010-11. During April-November 2010 telecom, crude oil production, civil aviation sectors performed well while the power generation, cement and fertilizer production, railway freight traffic and cargo handling at major ports have grown at comparatively lower rates. Six core industries registered a growth of 5.3 per cent (provisional) in April-December, 2010 as against 4.7 per cent during the same period in 2009-10.

Economic Survey 2010-11 has highlighted the increasing role of infrastructure services which have been deepening rapidly with rising investments. However unmet gaps still remains large and accelerated investments will be needed in the next Plan period for addressing delays, cost overruns and regulatory and pricing impediments. The telecommunications sector has done exceedingly well as the tele density has increased from 20.74 per cent in 2004 to 143.95 per cent in 2010 in urban areas. While in the rural areas it has gone up from 1.57 per cent in 2004 to 30.18 per cent in 2010.

Lauding the role of services sector as the potential growth engine, the Survey has called for the policies to promote further opportunities in new areas in global demand such as accounting, legal, tourism, education, financial and other services beyond the IT and business process sectors.

The Survey points out that the exports in April-December 2010 went up by 29.5 per cent while the imports during the same period registered a growth rate of 19 per cent. The trade gap narrowed down to US $ 82.01 bn in the same period. Balance of payment situation has improved due to surge in capital flows and rise in foreign exchange reserves which have been accompanied by rupee appreciation. During current fiscal foreign exchange reserves increased by US $ 18.2bn from US $ 279.4 bn in end April 2010 to US $ 297.3 bn in end December 2010.

The inclusive growth agenda of the Government is reflected in the 59 per cent rise in Net Bank Credit . The expenditure on Social sector programs has been stepped up by 5 percent point of GDP over the past five years.

The Survey points out that Gross Fiscal Deficit is 4.8% of GDP in 2010-11 as against 6.3 percent of GDP in the previous year. The Revenue deficit in the current financial year has been 3.5 percent of GDP as against 5.1 percent in the previous year.

The Economic Survey 2010-11 has expressed satisfaction at the progress of fiscal consolidation and the role of monetary policy on tackling inflation, ensuring availability of funds and expansion of credit growth. It has called for efficient taxation of goods and services by a new GST, raising revenues, installing stronger safeguards and measures to accelerate financial inclusion.

The Economic Survey 2010-11 has lauded the Government’s efforts in addressing social and financial inclusion. The specific schemes for Scheduled Castes, Tribes, OBCs and the regions such as North-East, expansion of Mahatma Gandhi NREGA, Sarva Shiksha Abhiyan , National Rural Health Mission, in terms of coverage as well as the spending and monitoring have found specific mention in the report. The survey has advised that a better convergence of the schemes to address the issues of unemployment and poverty alleviation could avoid duplication and leakages.

A call for reforms in the university and higher education and correcting the demand supply mismatch in the job market has been made in the report. It says the gap in resources for higher education may be met on the basis of public private partnership without diluting the regulatory oversight of the Government.

The Survey has also made specific mention of Government’s active engagement on issues related to climate change with expanded financing of programs and better policies.

The Economic Survey has suggested that in the long run the potential engines of growth for the country could be from skill development and innovative activity and therefore, efforts should be made to promote them.

Regarding the outlook for the Indian economy, the Survey says that despite the risks of global events, such as volatility in commodity prices like crude oil exacerbated by political turmoil in the Middle-East, the Indian economy seems poised to scale greater heights in terms of macro economic indicators. It sums up by stating that the real GDP growth is expected to reach the 9 per cent mark in 2011-12 and the next two decades may well see the economy growing faster than it has done any time in the past. 


Indian economy is poised to grow by 9 per cent in 2011-12 despite risks of global events like volatility in commodity prices, exacerbated by political turmoil in the Middle East, according to Economic Survey.
The Survey for 2010-11, tabled in Parliament by Finance Minister Pranab Mukherjee, has pegged the economic growth at 8.6 per cent for the current fiscal, helped by broad based rebound in agriculture and “continued momentum” in manufacturing and private services.
Inflation, an area of concern which acts as a road block for the growth, is expected to be 1.5 per cent higher than projected earlier, it said. Food inflation, in particular, has come as major challenge for the economy.
Prime Minister Manmohan Singh had on Thursday said that general inflation would come down to 7 per cent by March end from more than 8 per cent now. 

Days ahead of the general budget, the Survey indicated the need for fiscal consolidation. “Food inflation, higher commodity prices and volatility in global commodity markets have been a cause of concern underscoring the need of fiscal consolidation and stronger reserves,” it said.
Recognising the fact that prices continue to be high, the Survey has underlined the need to “monitor emerging trends in inflation” on a monthly basis while suggesting that the government should improve delivery mechanism by strengthening the situation and addressing “corruption.”
The 456-page report said inflation is expected to be higher than “what would be if the country was not on the growth curve.”
About the growth projections, the document said that with good monsoons, the agriculture sector is expected to grow by 5.4 per cent during the current financial year up from a lowly 0.4 per cent in the fiscal 2009-10.
“Rise in food inflation and the critical role of agriculture underlines the need for larger investments in the agriculture sector enroute to the second green revolution,” it said.
In its endeavour to achieve higher economic growth, the government should pursue a reform agenda which include over a dozen steps including streamlining land acquisition and faster environmental clearance for infrastructure projects.
The Survey called for an early introduction of the Goods and Service Tax (GST).
It underlined the need for private sector participation in social sectors such as health and education in the form of ’public-social-private’ partnership for supplementing the government efforts.
In the backdrop of difficulties in land acquisition, the Survey, which is considered as report card of the government along a paper prescribing policies to be pursued, suggested formation of a National Forest Land Bank.
This land bank will have clear titles to reduce approval time for forest go ahead.
It said that focus of the government’s flagship programme ’Mahatma Gandhi National Rural Employment Guarantee Scheme’ should be shifted to permanent asset building and infrastructure development.

The Economic Survey pegged the country’s agriculture sector growth at 5.4 per cent this fiscal, as against 0.4 per cent in the previous year.
The Survey also called for a “Second Green Revolution with technological breakthrough in the agriculture sector” to boost farm output and ensure the food security of the country.
“Agriculture likely to grow at 5.4 per cent in 2010-11,” said the Survey, which was tabled in Parliament on Friday.
The growth of agriculture and allied sectors is expected to be higher this year on the back of a revival in foodgrains production in the 2010-11 crop year (July-June) following a good monsoon.
Foodgrains production is estimated to rise to 232.07 million tonnes in 2010-11 crop year from 218.11 million tonnes last year. The country is all set to harvest a record wheat, pulses and cotton crop this year.
In the 2009-10 crop year, farm sector growth was only 0.4 per cent due to severe drought in 2009, which hit almost half the country, reducing foodgrain production by 16 million tonnes.

Following are the highlights of Economic Survey for the fiscal year 2010-11, presented in Parliament on 2011 February 25:
* Economy to grow at 8.6 per cent in 2010-11 and 9 per cent in the next fiscal.
* Gross Fiscal Deficit stands at 4.8 per cent of GDP, down from 6.3 per cent last year.
* Inflation expected to be 1.5 per cent higher than what it would be if the economy were not on growth path.
* Economy sees broad-based growth; rebound in farm and continued momentum in manufacturing, private services.
* Fundamentals strong with growing savings and investments, rapid rise in exports.
* Industrial output grows by 8.6 per cent; manufacturing sector registers 9.1 per cent.
* Exports in April-December 2010 up 29.5 per cent; imports up 19 per cent.
* Trade gap narrowed to $ 82.01 billion in April-December 2010.
* Food inflation, higher commodity prices and volatility in global commodity markets cause of concern.
* Inflation continues to be high; need to monitor emerging trends in inflation on a sequential monthly basis.
* To check food inflation, the government should improve delivery mechanisms by strengthening institutions and addressing corruption.
* Savings rate has gone up to 33.7 per cent, while the investment rate is up at 36.5 per cent of GDP.
* Rising food inflation underlines need for larger investment in farming, enroute to Second Green Revolution.
* Net bank credit grows by 59 per cent.
* Social programme spending stepped up by 5 percentage points of GDP over past 5 years.
* Production of foodgrains estimated at 232.1 mn tonnes.
* Forex Reserves estimated at $ 297.3 billion.
* Accelerated investments needed in infrastructure to address delays, cost overruns, regulatory impediments.
* Telecom sector did exceedingly well; role of services sector as the potential growth engine laudable.
* Policies needed to promote new areas such as accounting, legal, tourism, education, financial and other services.
* Economic growth to be faster than ever before in next two decades.
* Need for efficient taxation of goods and services by a new GST regime.
* Improve convergence of social and financial inclusion schemes to check unemployment, poverty and leakages.
* Reform university and higher education; correct demand supply mismatch in job market.
* Meet resource gap in higher education through public private partnership, with regulatory oversight.