The Economic Survey presented to Parliament today says that the economy has bounced back from the global economic slowdown and is on its way to the growth path of 9 per cent. The CSO estimate of 7.2 per cent GDP growth for 2009-10 reflects the fast paced recovery given the Index of Industrial Production (IIP) posting a record 16.8 per cent year-on-year growth during the month of December 2009. The Survey says that the economy has responded well to the policy measures undertaken in the wake of global financial crisis. It says, the adverse impact due to the delayed and sub-normal monsoon has been contained to a large extent and a better than average rabi agricultural season is expected. The Survey says that the recovery is well founded with pick up in merchandise exports, capital flows and non-bank food credit.
The turnaround came in the second quarter of 2009-10 when the economy grew by 7.9 per cent, year-on-year basis. The CSO estimates forecast 7.2 per cent growth in GDP with industrial output growing at 8.2 per cent and service sector at 8.7 per cent. The recovery is particularly impressive despite a decline of 0.2 per cent in agriculture output primarily due to sub-normal monsoon. The Survey says, the broad based nature of the recovery creates scope for a gradual roll back, in due course, of some of the measures undertaken over the last 15 to 18 months to put the economy back on the growth path of 9 per cent.
The Survey expresses concern over the emergence of high double-digit food inflation especially in the second half. Food price inflation stood at 17.9 percent for the week ended January 30, 2010 while the inflation in fuel, power, light and lubricant at 10.4 per cent. It says that the significant part of this inflation can be explained by supply side bottlenecks in some essential commodities. Since December 2009, there have been signs of these high food prices, together with hardening of non-administered fuel prices, getting transmitted to other non-food items. This has created some concerns for higher than anticipated generalized inflation over the next few months.
The recovery in GDP growth as indicated in the CSO advance estimates is broad- based with 7 out of 8 sectors/sub-sectors showing a growth rate of 6.5 per cent or higher. The per capita growth in income has recovered to 5.3 per cent in 2009-10 from 3.7 per cent in the previous year. The per capita consumption growth as reflected in the private final consumption expenditure shows a declining trend since 2007-08.
The Survey says that the country received 23 per cent less rainfall during the south-west monsoon 2009 but some of the shortfall was made up during the post monsoon season when the country received 8 per cent excess rainfall. Kharif 2009-10 season showed a decline of nearly 6.5 per cent in acreage with the entire decline confined to rice crop. While the decline in Kharif acreage under pulses was 5.63 per cent, some of this decline has been made up in the rabi season. As per the available estimates, wheat, pulses and groundnut have seen an increase in acreage as compared to last year.
The growth of broad money (M3) has moderated from around 21 per cent in the beginning of fiscal year to 16.5 per cent by mid January 2010 and it has remained below the indicated growth projection. While in the first half of the year, credit to the Government remained the key driver of money growth, it has moderated since the third quarter of 2009-10. The Survey says that since the outbreak of the global financial crisis in 2008, the RBI has followed an accommodative monetary policy supporting early recovery of the growth momentum. This has also facilitated the unprecedented borrowing requirement of the Government to fund its fiscal deficit. Nearly two third of the borrowing of the Government was completed in the first half of the fiscal year which not only helped in checking pressure on interest rate but also created space for the revival of private investment demand in the second half of the year. The fiscal expansion undertaken by the central government as a part of the policy response to counter the impact of global slowdown has resulted in increased fiscal deficit from 2.6 per cent in 2007-08 to 6.5 per cent in the Budget Estimates for 2009-10.
The Survey says that the recommendations of the Thirteen Finance Commission have to be taken on board in shaping the fiscal policy for 2010-11 and in the medium term. The Finance Commission has recommended a calibrated exit strategy from the expansionary fiscal stance of 2008-09 and 2009-10. It has also suggested that the revenue deficit of the centre needs to be progressively reduced and eliminated followed by emergence of revenue surplus by 2014-15.
The Survey notes with satisfaction that several factors that have emerged from the performance of the economy in the last 12 months augur well for the Indian economy. The gross domestic savings as a percentage of GDP stands at 32.5 per cent in 2008-09 while the gross domestic capital formation stands at 34.9 per cent. These figures compare favourably with some of the fastest growing economies. It also underlines the significance of the presence of Indian corporations in the global market place. The Survey is hopeful that the economy will go back to 9 per cent growth rate in the medium term. This follows the revival in investment and private consumption demand impressive growth in exports in November and December and remarkable turn around in Core infrastructure sector. It says, after a set back agriculture is gradually getting back to the projected path and with a reasonable one per cent additional growth in GDP coupled with recovery of global economy, the Indian GDP can be expected to grow around 8.5 per cent +/-0.25 per cent. With full recovery the economy can breach the 9 per cent mark in 2011-12. Given the steadily improving fundamentals of the economy, the Survey says, if there are improvements in infrastructure, both urban and rural, and reform in governance and administration, it is possible for India to move into double-digit growth and even become the fastest growing economy in the world within next four years.