Terming the economic performance in the current fiscal as "disappointing",the government's Economic Survey today expressed the confidence that an upswing is imminent and growth rate would rebound to 7.6 per cent in 2012-13,though challenges to contain inflation would remain. Attributing the decline in economic growth,which is projected to be at three-year low of 6.9 per cent in 2011-12,to global and domestic factors,the Survey,said,"There are signs from some high frequency indicators that the weakness in economic activity has bottomed out and a gradual upswing is imminent". The economic growth in the current fiscal is expected to slip to 6.9 per cent from 8.4 per cent in the previous two years. India was growing at over nine per cent before the global financial crisis pulled down the growth to 6.7 per cent in 2008-09. On future prospects,the Survey,an official account of the performance of the economy,said,"The growth rate of real GDP (is expected) to pick up to 7.6 per cent (plus or minus 0.25 per cent) in 2012-13 and faster beyond that." The growth rate will further improve to 8.6 per cent in 2013-14. Referring to the major challenges,the Survey said,the government would need to focus on fiscal consolidation,inflation management and reforms of direct and indirect taxes,besides initiating steps to deal with the menace of corruption. It further said that likely easing of inflationary pressure and subsequent reduction in interest rates would fuel economic growth,though cautioned that rising crude prices in the international market would continue to put pressure on prices. The Survey said the slowdown in economic growth should act as "a wake-up call" for the government and the RBI to address the domestic issues hampering recovery. Referring to tight monetary policy,persistently high inflation and slowing investment and industrial activity,it said,"there is room and need to be innovative in terms of policy; the slowing of economy is a wake-up call in that respect". The Survey said that inflation would come down to 6.5-7 per cent by March end. "Reining in inflation and containing inflationary expectations will continue to be important objectives of monetary policy; the shift to growth objectives has started. As inflation eases,it will open up opportunities to reduce policy rates," the Survey said. The fiscal deficit,it said,will narrow to 4.1 per cent in 2012-13 fiscal. For the current fiscal,it is widely expected that the Budget projection of 4.6 per cent will overshoot by one percentage point. "Going forward there is a need to anchor fiscal consolidation on structural reforms in expenditure," the survey said,adding that lower-than-expected growth in revenue receipts,slowdown in industry,rising costs and additional expenditure on account of stickiness in high global commodity prices,brought about slippages in the government finances. The Survey also said that industrial growth is likely to rebound next fiscal on moderation in inflation and easing global commodity prices and declining interest rates. It projected the economic growth to rebound to 8.6 per cent in 20131-14 fiscal,however,the Chief Economic Advisor to the Finance Minister Kaushik Basu said,"there could be one more year of slowdown in investment and savings." Currently investment and savings rate stands at 35.1 per cent and 32.3 per cent respectively. Three year ago investment rate was over 38 per cent,while the savings was more than 36 per cent. Economic Survey gives vital inputs for Budget making: Pranab Finance Minister Pranab Mukherjee today said the Economic Survey provides vital inputs for Budget preparation and can also be critical of government policies. "It (Survey) charts economic development and challenges faced during the fiscal year. It is a vital input for the preparation of the Budget. I view this economic survey as a vehicle for 14 new ideas and alternative policy options," Mukherjee told reporters here. The Finance Minister tabled the Economic Survey 2011-12 in Parliament today. The Survey,among other things,projected the economy to grow by about 7.6 per cent in the next fiscal,up from 6.9 per cent estimated in 2011-12. "It (Survey) need not necessarily play the views of the government alone. Sometimes,it criticises the views of the Government or policies of the Government," he said. This year's Economic Survey has added two new Chapters- financing of climate change and India's emergence in the global economy,which analyses the current global slowdown,eurozone crisis and what it means to India. The 2011-12 Survey has also suggested the government adopt the path of fiscal consolidation to bring down fiscal deficit,besides undertaking a crackdown on corruption. ------------ Summary of Economic Survey Survey Pegs GDP Growth At 6.9% in 2011-12 Outlook Brighter for Next Fiscals Indian economy is estimated to grow by 6.9% in 2011-12 mainly due to weakening industrial growth. This indicates a slowdown compared not just to the previous two years,when the economy grew by 8.4%,but also from 2003 to 2011,except 2008-9 economic downturn,when the growth rate was 6.7 percent. The Economic Survey 2011-12,presented by the Finance Minister,Sh Pranab Mukherjee in the Lok Sabha,however predicts 7.6% GDP growth in 2012-13 and 8.6% in 2013-14. With agriculture and services continuing to perform well,the slowdown can be attributed almost entirely to weakening industrial growth. The services sector continues to be a star performer as its share in GDP has climbed from 58% in 2010-11 to 59% in 2011-12 with a growth rate of 9.4%. Similarly,agriculture and allied sectors are estimated to achieve a growth rate of 2.5% in 2011-12 with foodgrains production likely to cross 250.42 million tonnes owing to increase in the production of rice in some States. The industrial sector has performed poorly,retreating to a 27% share of the GDP. Overall growth during April-December 2011 reached 3.6% compared to 8.3% in the corresponding period of the previous year. The Survey points out that inflation as measured by the wholesale price index (WPI) was high during most of the current fiscal year,though by year end there has been a clear slowdown in price rise. Food inflation,in particular,has come down significantly,with most of the remaining WPI inflation being driven by non-food manufacturing products. Monetary policy was tightened by the Reserve Bank of India (RBI) to control inflation and curb inflationary expectations. The growth rate of investment in the economy is estimated to have registered a significant decline during the current year. The year witnessed a sharp increase in interest rates that resulted in higher costs of borrowings; and other rising costs affecting profitability and,thereby,internal accruals that could be used to finance investment. But despite the low growth figure of 6.9%,India remains one of the fastest growing economies of the world as all major countries including the fast growing emerging economies are seeing a significant slowdown. The global economic environment which was tenuous at best throughout the year,turned sharply adverse in September,2011,owing to the turmoil in the euro-zone countries and questions about others,reflected in sharp ratings downgrades of sovereign debt in most major advanced countries. While a large part of the reason for the slowing of the Indian economy can be attributed to global factors,domestic factors also played role. Among these are the tightening of monetary policy owing to high and persistent headline inflation and slowing investment and industrial activity. However,for the Indian economy,the outlook for growth and price stability at this juncture looks more promising. There are signs from some high frequency indicators that the weakness in economic activity has bottomed out and a gradual upswing is imminent. The Economic Survey expects the growth rate of real GDP to pick up to 7.6% in 2012-13 and faster beyond that. The main reason for a gradual recovery is the decline in overall investment rate. Gross capital formation during the third quarter of 2011-12 as a ratio of GDP was at 30%,down from 32% one year ago. As fiscal consolidation gets back to track,savings and capital formation should begin to rise; moreover,with the easing of inflationary pressures in the months to come,there could be a reduction in policy rates by RBI,which should encourage investment activity and have a positive impact on growth. Preliminary calculations suggest that the growth rate of GDP in 2013-14 will be 8.6%. These projections are based on assumptions regarding factors like normal monsoons,reasonably stable international prices,particularly oil prices,and global growth somewhere between where it now stands and 0.5% higher .The Global economy remains quite fragile and concerted efforts will be needed through G-20 and other forums to restore stability and renewed growth,including addressing the sovereign debt crisis,financial regulation,growth and job creation efforts and energy security. The Economic Survey suggests that the progressive deregulation of interest rates on savings accounts will help raise financial savings and improve transmission of monetary policy. Other key areas include the deepening of domestic financial markets,especially corporate bond market and attracting longer-term inflows from abroad. Efforts at attracting dedicated infrastructure funds have begun. Indias foreign trade performance will remain a key driver of growth. During the first half of 2011-12,Indias export growth was a high 40.5%,but has been decelerating since. Imports have growth rapidly,by 30.4% during 2011-12 (April-December). Similarly,countrys Balance of Payments has widened to $ 32.8 billion in the first half of 2011-12,compared to $29.6 billion during the corresponding period of 2010-11. The foreign exchange reserves increased from US $ 279 billion at end March 2010 to US $ 305 billion at end March 2011. Reserves varied from an all-time peak of US$ 322.2 billion at end August,2011 and a low of US $ 292.8 billion at end-January,2012. The Survey recognizes that sustainable development and climate change are becoming central areas of global concern and India too is equally concerned and engaged constructively in global negotiations. Climate change challenges ahead are large and India is doing more than its fair share in reducing its energy-intensity of growth. India is now much more closely integrated with the world economy as its share of trade to GDP of goods and services has tripled between 1990-2010. At the same time,the extent of financial integration,measured by flows of capital as a share of GDP,has also increased dramatically and the role of India in the world economy has commensurately expanded,along with the other major members of emerging markets. Following are the highlights of Economic Survey 2011-12: Rate of growth estimated to be 6.9%. Outlook for growth and stability is promising with real GDP growth expected to pick up to 7.6% in 2012-13 and 8.6% in 2013-14. Agriculture and Services sectors continue to perform well. 2.5 % growth in Agro sector forecast. Services sector grows by 9.4 %,its share in GDP goes up to 59%. Industrial growth pegged at 4-5 percent,expected to improve as economic recovery resumes. Inflation on WPI was high but showed clear slow down by the year-end; this is likely to spur investment activities leading to positive impact on growth. WPI food inflation dropped from 20.2% in February 2010 to 1.6% in January 2012; calibrated steps initiated to rein-in inflation on top priority. India remains among the fastest growing economies of the world. Countrys sovereign credit rating rose by a substantial 2.98 percent in 2007-12. Fiscal consolidation on track - savings & capital formation expected to rise. Exports grew @ 40.5% in the first half of this fiscal and imports grew by 30.4%. Foreign trade performance to remain a key driver of growth. Forex reserves enhanced - covering nearly the entire external debt stock. Central spending on social services goes up to 18.5% this fiscal from 13.4% in 2006-07. MNREGA coverage increases to 5.49 crore households in 2010-11. Sustainable development and climate change concerns on high priority.
