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Showing posts with label ECONOMIC SURVEY 2011-12. Show all posts
Showing posts with label ECONOMIC SURVEY 2011-12. Show all posts

Saturday, March 31, 2012

State of India's Economy

The Indian economy slowed down in 2011-12, compared not just to the previous two years but 2003 to 2011 (except 2008-09). However, India remains among the front-runners.

With agriculture and services continuing to perform well, India’s slowdown can be attributed almost entirely to the weakening industrial growth. The manufacturing sector grew by 2.7 per cent and 0.4 per cent in the second and third quarters of 2011-12, respectively. Inflation as measured by the wholesale price index (WPI), was high during most of the fiscal year, though by the year’s end there was a clear slowdown. Food inflation, in particular, came down to around zero, 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) during the year to control inflation and curb inflationary expectations.

The global economic environment turned sharply adverse in September 2011, owing to the turmoil in the euro-zone and questions about the outlook on the US economy provoked by rating agencies.

The macroeconomic situation in February 2011—at the time of presentation of Economic Survey 2010-11—looked positive, even though there was some concern about industrial slowdown. Economic Survey 2010-11 had anticipated that the Indian economy would register growth of around 9 per cent (+ or - 0.25 per cent) in 2011-12, almost reverting to the pre-crisis levels achieved during the three-year period, from 2005-06 to 2007-08. However, during the course of the year it became increasingly clear that economy would fall short of that growth rate by a significant margin.

At sectoral level, growth is estimated to be 2.5 per cent for 2011-12 for agriculture and allied sectors, a little lower than expected. Growth in the services sector is likely to be 9.4 per cent in 2011-12, as against 9.3 per cent in 2010-11. Thus, it was primarily the dip in growth in industry to 3.9 per cent in 2011-12 that led to the slowdown in real gross domestic product (GDP) growth .

Domestic factors, namely the tightening of monetary policy, in particular raising the repo rate in order to control inflation and anchor inflationary expectations, resulted in some slowing down of investment and growth, particularly in the industrial sector. Since monetary policy operates largely through demand compression in the short run, the expectation is that this policy will in fact bolster long-run growth. The 2008-09 down-turn came to India when the country’s fiscal balances were robust. Hence, there was ample scope for fiscal and monetary stimulus. As in most parts of the world, this second slowdown came so quickly on the heels of the previous one that the latitude in terms of fiscal and monetary policy was much more limited.

The growth rate of investment in the economy registered a significant decline during 2011-12. The year also 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. In 2010-11, the growth in gross capital formation, particularly fixed capital formation, was substantially lower than had been achieved in 2005-06 to 2007-08. The investment rate continued to be lower than the peak level achieved in 2007-08.

Despite difficult conditions in the global economy, exports continued to be robust in 2011-12 and registered a growth rate of 14.3 per cent in real terms over and above 22.7 per cent growth achieved in the previous year (2010-11), as per Advance Estimates. Imports are likely to end the year with a real growth rate of 17.5 per cent.

There was a reduction in investment rates, both in the public and private sectors, particularly the corporate sector, in 2010-11. Reduction in corporate investment could be attributed to global factors, with the global economy exhibiting signs of slowing down in the second half of 2010, as well as to domestic factors, namely increased cost of borrowing following the raising of interest rates in order to control inflation. Fixed investment as a ratio of GDP peaked in 2007-08 and has continued to register a decline since then, falling from 31.6 per cent in 2009-10 to 30.4 per cent in 2010-11.

At 2.8 per cent of GDP, the savings-investment gap during 2010-11 remained at the same level as in 2009-10. This reflected the need to finance the investment requirement from foreign savings (current account deficit). The gap, in excess of 2 per cent of GDP, has been at relatively elevated levels (since 2008-09). The savings-investment gap narrowed both in the public as well as private sectors in 2010-11 vis-à-vis 2009-10. For the public sector, it narrowed from -9.0 per cent of GDP to -7.1 per cent.

The increase in the revenue levels, thanks partly to substantial increase in non-tax revenue receipts in the year 2010-11, and the process of fiscal consolidation were among the factors responsible for narrowing of the public sector’s savings-investment gap.

In the medium to long term, growth of an emerging economy depends, to a large extent, not only on overall level of investment but also on its sectoral composition, reflecting the transformation taking place. However, annual growth rates of investment, both at aggregate and sectoral levels may vary, depending on expectations of profitability, sales, etc.

Historic Background
The rate of growth of Indian economy, between 1950-51 and 1990-91, was 4.1 per cent. In contrast, between 1991-92 and 2011-12 the economy registered a growth of 6.9 per cent. While in the four decades from 1951-52 to 1991-92, the growth rate in terms of GDP at factor cost (at 2004-05 prices) was more than 6 per cent only in 10 years, between 1992-93 and 2011-12 (including the AE for 2011-12) (a time-span covering 20 years, inclusive of both observations) the growth rate has been over 6 per cent in as many as 14 years. The growth rate has accelerated significantly since 2003-04. Between 2003-04 and 2011-12, the economy registered a growth of 8.2 per cent per annum. In fact, during this period, the growth rate has never fallen below 6.7 per cent and has been over 8 per cent in six of these nine years. All the three major sectors of the economy, namely agriculture, industry, and services witnessed higher-than-trend growth rates at 3.9 per cent, 8.0 per cent, and 9.6 per cent, respectively. Clearly the services sector has emerged as the key driver of growth in the Indian economy.

This accelerated growth could partly be attributed to an increase in savings and investment rates, which averaged 33.1 per cent and 34.3 per cent, respectively, during the period between 2003-04 and 2010-11. The average savings and investment rates in the 1990s were 23.0 per cent and 24.3 per cent, respectively. Sustaining and accelerating this growth further could be crucial for attaining higher per capita income and other objectives that aim at enhancing human welfare as reflected by the inclusive development agenda

The contributions of the agriculture and allied sector, industry sector, and services sector also underwent significant changes overtime. The long-term growth rate of the agriculture sector (over the last 60 years) has been 2.7 per cent. It was 2.3 per cent between 1950-51 and 1980-81 and 3.1 per cent during 1980-81 to 2011-12. Growth in the industry sector increased from 5.2 per cent in the earlier period to 6.4 per cent between 1980-81 and 2011-12. Similarly, growth in the services sector was 4.4 per cent and 7.8 per cent, respectively, during these two sub-periods.

The structure of the economy has also undergone significant changes over time. Between 1950-51 and 1980-81, the industrial sector registered a higher growth rate than the services sector. The converse has been the case since then. This resulted in the share of the industry sector in GDP increasing by around 9 percentage points from 16.6 per cent to 25.9 per cent during the period from 1950-51 to 1980-81. The share of the services sector increased from 30.3 per cent in 1950-51 to 38 per cent in 1980-81. It started growing rapidly thereafter and this phenomenon became more pronounced in the 1990s. Consequently, since 1980-81, the share of the industry sector has remained in the range of 26 to 28 per cent of GDP, while the entire decline in share of agriculture has been balanced by an increase in share of the services sector. Thus, the resilience of the economy to shocks owe to the services sector which has the largest share and most consistent growth performance.

Agriculture and Food
Agriculture, including allied activities, accounted for 13.9 per cent of GDP at 2004-05 prices in 2011-12, as compared to 14.5 per cent in 2010-11. In terms of composition, out of a total share of 14.5 per cent in GDP in 2010-11, agriculture alone accounted for 12.3 per cent, followed by forestry and logging at 1.4 per cent, and fishing at 0.7 per cent. Notwithstanding the declining trend in agriculture’s share in GDP, the importance of the sector to the economy is best understood with reference to its share in employment and in terms of its criticality for macro-economic stability. While the former was well known, the latter became manifest with rising growth in incomes since the mid-2000s.

Hence, growth in agriculture and allied sectors remains an important objective and a ‘necessary condition’ for inclusive growth. The average annual growth in agriculture and allied sectors realized during the Eleventh Plan Period was 3.3 per cent, against the targeted growth rate of 4 per cent. The sector recorded slightly lower average growth than targeted in the Eleventh Plan period due to severe drought experienced in most parts of the country during 2009-10 and drought/deficient rainfall in some States, namely Bihar, Jharkhand, eastern UP, and West Bengal in 2010-11. However, timely and corrective measures taken by the government helped boost agricultural production and growth in the sector reached 7.0 per cent in 2010-11, the highest growth rate achieved during the last six years. In 2011-12 agriculture and allied sectors are estimated to achieve a growth rate of 2.5 per cent. However, it is a matter of concern that agricultural growth is still, to a certain extent, characterized by fluctuations due to the vagaries of nature, though there has not been actual decline in terms of output since 2002-03.

In 2010-11 a significantly high level of 244.78 million tonnes of foodgrains production was achieved. As per the second AE, production of foodgrains during 2011-12 has been estimated at 250.42 million tones, owing to increase in the production of rice in some of the major rice-producing states of the country, namely Assam, Bihar, West Bengal, Jharkhand, and Uttar Pradesh.

The stock position of foodgrains in the central pool, as on February 1, 2012 was 55.2 million tonnes, comprising 31.8 million tonnes of rice and 23.4 million tonnes of wheat, which is adequate for meeting the requirements under the targeted public distribution system (TPDS) and welfare schemes 2011-12. The higher levels of agricultural output and ample food stocks augur well for bringing down headline inflation.

Industry and Infrastructure
Industrial growth, measured in terms of the index of industrial production (IIP), shows fluctuating trends. Growth had reached 15.5 per cent in 2007-08 and then started decelerating. Initial deceleration in industrial growth was largely on account of the global economic meltdown. There was, however, a recovery from 2.5 per cent in 2008-09 to 5.3 per cent in 2009-10 and 8.2 per cent in 2010-11. Fragile economic recovery in the US and Europe and moderately subdued expectations at home affected the growth of the industrial sector in the current year.

Cumulative growth in April-January 2011-12, in eight core sectors has been 4.1 per cent, as compared to 5.7 per cent during the corresponding period of the previous year. While four sectors, namely coal, fertilizers, cement, and electricity, showed positive growth during January 2012, other four sectors—crude oil, natural gas, refinery products and steel—registered negative growth.

Electricity generation by power utilities during 2011-12 was targeted to grow by 5.4 per cent to reach 855 billion units. Growth in power generation during April-January 2011-12 was 8.6 per cent, as compared to 5.2 per cent during April-January 2010-11. Production of crude oil is estimated at 38.19 million metric tonnes (MMT), which is about 1.33 per cent higher than the 37.70 MMT produced during 2010-11. Domestic crude oil production during April-December 2011-12 was 28.70 MMT, showing a growth of 1.9 per cent over the same period of the previous year.

The telecom sector continued to grow, with the total number of telephones increasing from 206.8 million on March 31, 2007 to 926.95 million on December 31, 2011. Tele-density has increased from 18.2 per cent in March 2007 to 76.8 per cent in December 2011.

Services Sector
The share of services in India’s GDP at factor cost (at current prices) increased from 55.1 per cent in 2010-11 and 56.3 per cent in 2011-12, as per Advance Estimates. Trade, hotels, and restaurants as a group, with 16.9 per cent share, is the largest contributor to GDP among the various services sub-sectors, followed by financing, insurance, real estate, and business services with 16.4 per cent share.

While agriculture continues to be the primary employment-providing sector, the services sector is the principal source of employment in urban areas. As per the National Sample Survey Organization’s (NSSO) report on the ‘Employment and Unemployment Situation in India, 2009-10’, for every 1,000 people employed, 679 and 75 people are employed in agriculture sector in rural and urban areas, respectively, (measured in terms of usually working persons in the principal status and subsidiary status). On the other hand, the services sector accounted for 147 and 582 of every 1,000 persons employed in rural and urban areas, respectively.

Prices
Headline WPI inflation remained persistently high and relatively sticky at around 9 per cent during 2011. The major contributory factors to headline inflation during the current financial year include (a) higher primary articles prices driven by vegetables, eggs, meat, and fish due to changing dietary pattern of consumers; (b) increasing global commodity prices especially metal and chemical prices which ultimately led to higher domestic manufactured prices; and (c) persistently high international (Brent) crude petroleum prices in the last two years averaging around $ 111 per barrel (/bbl) in 2011 (January-December) as compared to $ 80/bbl in 2010 (January-December).

Compared to a relatively stable inflationary period in the earlier part of the last decade, average headline WPI inflation started to rise in 2008-09 and persisted. The pressure was mainly from primary and fuel products with average inflation in these commodities remaining continuously in double digits for a major period since 2008-09. In comparison, inflation in manufactured products remained relatively stable, dropping sharply in 2009-10 because of the global economic crisis and its impact in India, before it started to pick up and exceed its long-run average of around 5 per cent in early 2011-12. Among individual product groups, inflation in food products, beverages, textiles, chemicals, and basic metals remained elevated mainly on account of high global commodity prices.

Reining in inflation and containing inflationary expectations were the dominating objectives of monetary policy during 2011-12. The RBI hiked the repo rate 13 times between March 2010 and January 2012, cumulatively by 375 basis points (bps). With supply-side factors feeding into food inflation and an uncertain economic scenario in advanced countries necessitating repeated liquidity injections by these countries to counter recessionary trends, the task of monetary policy calibration was particularly challenging. Sustained rate increases have, to an extent, impacted growth negatively. However, the period from December 2011 to January 2012 marked a reversal of the cycle with the RBI in its Third Quarter Review of Monetary Policy keeping the repo and reverse repo rates unchanged at 8.5 per cent and 7.5 per cent, respectively. The cash reserve ratio (CRR), however, has been reduced from 6.0 to 5.5 per cent in order to ease the liquidity situation and aid revival of growth.

Financial Markets
The weak global economic prospects and continuing uncertainties in the international financial markets had their impact on emerging market economies like India. Sovereign risk concerns, particularly in the euro area, affected financial markets for the greater part of the year, with the impact of Greece’s sovereign debt problem spreading to India and other economies by way of higher-than-normal levels of volatility.

Subdued foreign institutional investor (FII) inflows into the country led to a decline in Indian markets and contributed to the sharp depreciation of the rupee in the forex market, though much of the depreciation was due to ‘flight to safety’ by foreign investors, given the meltdown in Europe and inflation in emerging market economies. Moderation in the growth rate of the economy also affected market sentiments.

International Trade
The resilience of India’s trade can be seen from the fact that the growth of exports and imports, which was (-)3.5 per cent and (-)5 per cent, respectively, in 2009-10 as a result of the 2008 global economic crisis, rebounded to 40.5 per cent and 28.2 per cent in 2010-11. India not only reached pre-crisis levels in exports but also surpassed pre-crisis trends in export growth rate, unlike many other developing and even developed countries. India’s share in global exports and imports also increased from 0.7 per cent and 0.8 per cent, respectively, in 2000, to 1.5 per cent and 2.2 per cent in 2010.

The highlight of BoP developments during 2011-12 was merchandise exports of US$ 150.9 billion in the first half of the year, which represented an increase of over 40 per cent over the corresponding period in 2010-11. Imports of US$ 236.7 billion during April-September 2011 recorded an increase of 34.3 per cent over April-September 2010. The trade deficit was higher at US$ 85.8 billion (9.4 per cent of GDP) during the first half of 2011-12, vis-à-vis US$ 68.9 billion (8.9 per cent of GDP) in the first half of 2010-11. This was mainly on account of increase in international prices of imported commodities, namely oil and gold and silver during the first half of 2011-12.

Net capital flows at US$ 41.1 billion in the first half of 2011-12 remained higher as compared to US$ 38.9 billion in the first half of 2010-11. Under net capital flows, foreign direct investment (FDI) has shown considerable increase at US$12.3 billion during the first half of 2011-12, vis-à-vis US$ 7.0 billion in the corresponding period of 2010-11. Similarly, ECBs increased to US$ 10.6 billion during the first half of 2011-12, as against US$ 5.7 billion in the first half of 2010-11. Portfolio investment, mainly comprising FII investments and American  depository  receipts (ADRs)/global depository receipts (GDRs), however, witnessed large decrease in inflows to US$ 1.3 billion in the first half of 2011-12 vis-à-vis US$ 23.8 billion in the first half of 2010-11

In fiscal 2010-11, foreign exchange reserves increased by US$ 25.7 billion, from US$ 279.1 billion at end March 2010 to US$ 304.8 billion at end March 2011. Of the total increase in reserves, US$12.6 billion was on account of valuation gains arising out of depreciation of the US dollar against major currencies and the balance US$ 13.1 billion was on BoP basis. In 2011-12, the reserves increased by US$ 6.7 billion from US$ 304.8 billion at end March 2011, to US$ 311.5 billion at end September 2011. Out of this total increase, US$5.7 billion was on BoP basis and the balance US$1.0 billion on account of valuation effect.

External Debt
India’s external debt stock stood at US$ 326.6 billion at end-September 2011, recording an increase of US$ 20.2 billion (6.6 per cent) over end March 2011 estimates of US$ 306.4 billion. This increase was primarily on account of higher commercial borrowings and short-term debt, which together contributed over 80 per cent of the total increase in the country’s external debt.

The maturity profile of India’s external debt indicates the dominance of long-term borrowings. The long-term external debt at US$ 255.1 billion at end September 2011 accounted for 78.1 per cent of the total external debt, while the remaining 21.9 per cent was short-term debt. Government (sovereign) external debt stood at US$ 79.3 billion, while non-government debt amounted to US$ 247.3 billion at end September 2011. India’s external debt has remained within manageable limits as indicated by the external debt to GDP ratio of 17.8 per cent and debt service ratio of 4.2 per cent in 2010-11. This has been possible due to an external debt management policy of the government that emphasizes monitoring of long- and short-term debt, raising sovereign loans on concessional terms with long maturities, regulating ECBs through end-use and all-in-cost restrictions, and rationalizing interest rates on NRI deposits.

Future Prospects
The financial crisis in Europe, along with certain exogenous shocks like the Japanese nuclear disaster, resulted in a sharp global economic slowdown during 2011-12. There is no doubt, however, that a part of India’s slowdown is rooted in domestic causes. The persistent inflation that remained over 9 per cent for much of the year and needed to be tamed played a role. There were also the pressures of democratic politics, which slowed reforms.

The main reason for the recovery to be initially slow is the slight decline in investment rate. In the third quarter of 2011-12, gross fixed capital formation as a ratio of GDP was 30 per cent, down from 32.3 per cent one year ago. But as fiscal consolidation gets back on 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 the RBI, which would encourage investment activity that could have a positive impact on growth. These factors, along with the fact that India’s investment rate at 35.1 per cent, is still an impressive figure, should result in growth consolidating in 2012-13 and picking up rapidly thereafter. Preliminary calculations suggest that the growth rate of GDP in 2013-14 will be 8.6 per cent. Long-term forecasts, of course, always come with a larger margin of error. 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 per cent higher.

Agricultural growth in the Eleventh Five Year Plan has been less than the target of 4 per cent despite a clear improvement compared to the previous plan periods. Though agriculture has now shrunk as a proportion of GDP to 13.9 per cent, as is only to be expected of a growing economy, it is vital sector and provider of livelihood for more than 50 per cent of the population. How this sector performs also has large implications for overall prices and, hence, it is a sector deserving of special attention. The area under foodgrains production has declined over the last three decades. That in itself is not worrying, but what is of concern is the low productivity of Indian agriculture. In yield parameters, India is lagging behind global levels in most crops. Concerted and focused efforts are required for addressing the challenge of stagnating productivity levels in agriculture. A holistic approach, simultaneously working on agricultural research and development, dissemination of technology, and provision of agricultural inputs such as quality seed, fertilizers, pesticides, and irrigation, would be important. Above all, the need is to raise investment in agriculture.

It is also important to understand that productivity itself will get a fillip if the supply chain from farm to consumer can be improved. This will lead to farmers getting a higher price for their products and be an incentive for them to invest and produce more. The crux of an improved supply chain is not for government to try to provide this directly by the public service delivery authorities but to take policy steps that facilitate private players to provide this vital service.

In 2010-11 and 2011-12, there was a slight moderation in services growth, mainly due to the steep fall in growth of public administration and defence services, creating some fiscal space for the government. Growth in trade, hotels, and restaurants is more robust at 11.2 per cent. If interest rates remain elevated, there would be some concern about growth in real estate, ownership of dwellings, and business services which has started decelerating. The outlook for some of the services in the economy is also linked to the global prospects. While software services exports have continued to be steady, the unfolding events in the euro area could lead to some sluggishness in this sector. The growth in fair-weather business services which has already shown signs of deceleration may not get better. Among the other two major services, transportation has already been affected with the Baltic dry index at an all-time low, though this may be of a passing nature. While travel and tourism could also be affected, it could also lead to a shift in tourist inflow pattern with increased inflow of holiday backpackers searching for cheaper destinations like India. The rise in tourists from South Asia, East Asia, and South East Asia could further help this sector.

The recent regulatory prescriptions for European banks have brought in fears of de-leveraging. Indian banks are not expected to have any direct impact on account of their negligible exposure to the troubled zone. However, there could be indirect impact on account of funding pressures. The scope for counter-cyclical financial policy could be explored in financial regulations in order to minimize the negative impact of accumulated financial risks. This will go a long way in providing needed stability to the financial system.

Going forward, fiscal consolidation would need to be anchored in a framework that addresses some of the risks like rise in crude prices. Besides, micro-foundational reforms are needed for achieving desired macro-economic outcomes.

This feature is based on Economic Survey 2012

Sunday, March 18, 2012

Case for new models of funding infra projects


With the country facing severe infrastructure constraints and slow pace of implementation of mega projects, the Economic Survey called for putting in place new models of financing the infra sector to meet the funding requirement of $1 trillion in the XII Plan.
“In view of the massive requirement of funds, all efforts need to be made to attract big-ticket long-term investors such as strategic investors, private equity funds, pension funds, and sovereign funds,''' the Survey says.
“There is a need for introducing more innovative schemes to attract large-scale investment into infrastructure.
“Strengthening domestic financial institutions and development of a long-term bonds market may be critical,'' it states.
Stating that 50 per cent of the projected investment will come from the private sector in the next Five Year Plan, the Survey says, financing infrastructure will, therefore, be a big challenge in the coming years and will require some innovative ideas and new models of financing.
Taking a cue from the realisation of investment targets for infrastructure during the current Plan, the survey expresses hope that financing of the ambitious XII Plan investment target will be possible.
According to the Survey, bank credit to projects in the sector had witnessed a healthy growth of 48.4 per cent annually during 2006-11, increasing from Rs.30,286 crore during 2006-07 to Rs.1,46,767 crore during 2010-11. However, credit growth has turned negative in the current financial year and at Rs.70,155 crore, net credit to the infrastructure sector during April-December, 2011, was nearly 61 per cent lower than the same period of last fiscal, it noted. 

Private participation
The Survey also calls for creating a conducive environment for private sector participation with a transparent and credible regulatory mechanism for financing the infrastructure projects to reduce the pressure on public-sector funding.
Emphasising that the performance in core infrastructure sectors is still to a large extent dependent on public sector projects, the Survey says, in the next Five Year Plan, the public sector investment will need to increase to over Rs.22.50 lakh crore, a rise of over 71 per cent than the current Plan.

Thursday, March 15, 2012

Highlights of Economic Survey 2011-12

Following are the highlights of Economic Survey 2011-12:
1. 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.
2. 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%.
3. Industrial growth pegged at 4-5 percent, expected to improve as economic recovery resumes.
4. 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.
5. 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.
6. India remains among the fastest growing economies of the world. Country’s sovereign credit rating rose by a substantial 2.98 percent in 2007-12.
7. Fiscal consolidation on track - savings & capital formation expected to rise.
8. 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.
9. Central spending on social services goes up to 18.5% this fiscal from 13.4% in 2006-07.
10. MNREGA coverage increases to 5.49 crore households in 2010-11.
11. Sustainable development and climate change concerns on high priority.

Economic Survey Pegs Industrial Growth at 4-5% in the Current Financial Year

The Economic Survey 2011-12 tabled in the Lok Sabha ON mARCH 15 by the Finance Minister, Shri Pranab Mukherjee has projected the industrial-sector growth during the current financial year to be between 4 to 5%. At this rate, says the Survey the annual growth rate will be less than the annual growth rates achieved in the recent past and far below the potential growth rate.

The Survey has said that the challenge for the sector in the short term would be to shore up of business sentiments, spur investment in productive activities and identify bottlenecks that can be removed in a reasonably short period of time. With the easing of headline inflation, moderation in commodities prices in the international market, and revival of manufacturing performance in recent months in the major economies, India’s industrial sector is expected to rebound during the next financial year.

According to the Survey, the long term average annual growth of industries comprising mining, manufacturing and electricity has in general remained aligned with the overall GDP growth rate during the post reform period between 1991-92 and 2011-12, averaging 6.7% as against GDP growth of 6.9%. The share of industry (including construction) and manufacturing in GDP remained generally stable at 28% and in the 14-16% range respectively during this period. The share of industry in total employment, however, increase from 16.2% in 1999-2000 to 21.9% in 2009-10 largely on account of expansion of employment opportunity in the construction sector from 17.5 million in 1999-2000 to 44.2 million in 2009-10.

The Survey has highlighted that the industrial growth, measures in terms of Index of Industrial Production (IIP) during April-December 2011 reached 3.6% compared to a growth of 8.3% in the corresponding period of previous year. There was a contraction in production in the mining sector, particularly in the coal and natural gas segments. The electricity sector witnessed and improvement in its growth in the current year. Growth also moderated in the manufacturing sector from 9.0% in April-December 2010 to 3.9% in April-December 2011. The Survey also points out that the basic goods and non-durables goods had a relatively better growth at 6.1% compared to the growth in the corresponding period of previous year. There was a moderation in growth in other segments of IIP and negative growth was observed in capital goods and intermediates segments.

As per the Economic Survey 2011-12, the share of Gross Capital Formation (GCF) in industry as percent to the overall GCF, after peaking to a level of 54.9% in 2007-08, moderated to 48.3% in 2010-11 the manufacturing GCF growth rate declined to 7% in 2010-11 from 42% in 2009-10. In the current year, the rate of growth of banking sector credit flow to industries moderated significantly. On year-on-year basis, credit growth to industry decelerated to 19.8% in December 2011 from 31.6% in December 2010. Moderation in rate of growth of credit was particularly large for the infrastructure and manufacturing sectors.

The Survey has stated that in medium to long term several challenges remains for the sector. The Planning Commission has projected growth rates of 9.8% and 11.5% in manufacturing sector required to achieve 9 % and 9.5% economy growth respectively. Commenting on the National Manufacturing Policy (NMP) which has envisaged even higher growth of 14% per annum so as to take the share of manufacturing in GDP to 25% and increase the absorption of labour in this sector from 50 million as of today to more than 150 million by 2022. The Survey notes that to achieve this policy objectives, several policy measures will have to be pursued simultaneously such as resolving issues of land availability and infrastructure for the proposed national investment and manufacturing zones (NIMZs); strengthening backward and forward linkages of manufacturing sector with agriculture and services sectors respectively; acquiring depth in manufacturing sector by focusing on high value addition industries; and prompting FDI to fill the saving-investment gap etc.

Achievements in Some Infrastrucutre Sector ‘Remarkable’

The Economic Survey 2011-12 tabled in Lok Sabha today by the Finance Minister Shri Pranab Mukherjee, says that the overall performance in creation of infrastructure in physical terms, in some sectors, during Eleventh Five Year Plan, have been remarkable as compared to the previous Five Year Plan, though there have been slippages in some sectors. The success in garnering private sector investment in infrastructure through the public-private partnership (PPP) route during the Plan has laid solid foundation for a substantial step in private-sector funding in coming years. PPPs are expected to augment resource availability as well as improve the efficiency of infrastructure service delivery. The Planning Commission has projected an investment requirement of over Rs. 45 lakh crore (about US $ 1 trillion) during the Twelfth Plan (2012-12). It is projected that at least 50% of this investment will come from the private sector as against the 36% anticipated in the Eleventh Plan and public sector investment will need to increase to over Rs.22.5 lakh crore as against an expenditure of Rs. 13.1 lakh crore during the Eleventh Plan. Financing infrastructure will, therefore, be a big challenge in the coming year and will require some innovative ideas and new models of financing, says the Survey.

The Survey has pointed out that the performance of broad sectors and sub sectors in key infrastructure areas in the current year presents a mixed picture. There was improvement in growth in power, petroleum refinery, cement, railway freight traffic, passenger handled at domestic terminals and upgradation of NHAI. Coal, Natural Gas, Fertilizers, handling of Export Cargo at airports and number of cell phone connections show negative growth. Steel sector witnessed moderation in growth.

According to the Survey, the performance in core and infrastructure sector is still to a large extent dependent in public sector projects the flash report for the month of October 2011 tracks the progress report of 583 projects in different sectors of which-only 7 are a head of schedule, 166 are on schedule, 235 are delayed and remaining 175 projects have been sanctioned without specifying any commissioning schedule. This has implied of cost over run of 15.3%. The Survey says that such delays increase project risk and cost, and could be minimized.

As per to the Survey, credit growth to the infrastructure sector turned negative in the current financial year. The incremental credit flow to the infrastructure sector during April-December 2011 was nearly 61% of the credit to this sector during April-December 2010. A significant reduction in credit flow was observed for the power and telecom sectors. The total FDI inflows into majors infrastructure sectors during April-December 2011 however, registered a growth of 23.6% as compared to the FDI inflows during April-December 2010. Power (43.6%), Non Conventional Energy (338 %) and Telecommunications (499%) were the preferred sectors for foreign investors. Other sectors, however, failed to share the buoyancy in FDI inflows.

The Survey has commented that in the coming years, financing of infrastructure also need to consider the plateauing of the domestic savings and macro availability of resources. There is need for introducing more innovative schemes to attract large-scale investment into infrastructure. In view of the massive requirements of funds, all efforts need to be made to attract big ticket long-term investors such as strategic investor, private equity funds, pension funds, and sovereign funds. Strengthening domestic financial institutions and development of a long-term bonds market may be critical. Besides financing, the infrastructure sector has also suffered due to a time lag in physical capacity creation and time over-run. These not only delay availability, but also raise pricing and affordability issues. Infrastructure costs as these are often non-tradable may also affect competitiveness of economy in long run. The Survey has stated that a harmonized list of main sectors and sub-sectors of infrastructure approved by the Government to serve as a guide for all agencies responsible for supporting infrastructure, is a welcome move.

Options to Ensure Price Stability in Food Items – Economic Survey

According to Economic Survey 2011-12, compositional shift in food basket of common household has increased demand of some food items. There are some constraints also in supply side which have been exposed during the recent episode of inflation in vegetables and fruits The Economic Survey has suggested following options to address these constraints.

• Extension programmes and guidance to farmers regarding fertiliser and insecticide uses an alternate cropping pattern based on soil analysis could be undertaken and intensified.

• As a strategy, regular imports of agriculture commodities in relatively smaller quantities with an upper ceiling on total quantity could be considered. The upper ceiling can be decided annually, relatively well in advance, after assessing the likely domestic situation in terms of production and consumption requirements.

• Setting up special markets for special crops in states/regions/areas producing those crops would facilitate supply of superior commodities to the consumers.

• Improved Mandi governance is an area of concern. A greater number of traders must be allowed as agents in mandis. Anyone who gets better prices and terms outside the Agricultural Produce Marketing Committee (APMC) or its farmgate should be allowed to do so.

• For promoting interstate trade, a commodity for which market fee has been paid once must not be subjected to subsequent market fee in other markets including that for transaction in other states. Only user charges linked to services provided may be levied for subsequent transactions.

• Perishable food items could be taken out of ambit of the APMC Act. The Government regulatory mandis sometimes prevent retailers from integrating their enterprises with those of farmers. In view of this perishable may have to be exempted from this regulation.

• Considering significant investment gaps in post harvest infrastructure of agriculture produce, organised trade and agriculture should be encouraged and the FDI in multi brand retain once implemented could be effectively leveraged towards this end.

• The Government should step up creation of modern stories facilities for food grains.

Government Takes Calibrated Steps to Rein in Inflation

The Economic Survey 2011-12 suggests policies to put India on a surer footing for sustained, inclusive growth and all-round development. The Survey takes note of the Government fighting malaise of inflation with numerous calibrated steps which constituted a combination of policies to improve supply, especially of food and basic agricultural products and curb fiscal and revenue deficits. Independently, the Reserve Bank of India tightened the monetary policy. While the battle against inflation had some slowing down effect on growth, there were no signs of major long-tem damage or rise in unemployment. The Government thus is in a position to turn its attention more exclusively to inclusive growth, notes the Survey. The Survey recommends that Government’s primary concern now has to be to advance the economy’s productivity and improve income distribution.

The fiscal year 2011-12 saw several initiatives to improve agricultural productivity and management of supply chains which have yielded results and contributed to containment of food price inflation. Deregulation of savings bank interest rates since October 2011 have contributed to control the Wholesale Price Index (WPI) inflation rate. The Survey suggests that rapid fiscal consolidation is the only way out to keep inflation down and aim for robust growth. “The principle way in which this has to be achieved is by raising our tax-GDP ratio and cutting down wasteful expenditures”, says the Survey. The centre’s gross tax-GDP ratio (BE 2011-12) stood at 10.5 per cent. “Our aim must be to cross 13 per cent by 2016-17” adds the Survey. The Economic Survey 2011-12 also notes that critical task of inclusion cannot be left to the free market. For Government the role has to be that of enabler, the Survey reiterates

According to the Economic Survey 2011-12 the growth rate is expected to pick up from the second quarter of 2012-13. “We expect growth in 2012-13 to be 7.6 (+/-0.25) per cent” says the Survey. The Survey also projects “ in 2013-14 it is expected that there will be further recovery for India and the nation will virtually be on the growth path it was on before the global recession of 2008”. The major drivers of growth – the savings and investment rates as percentage of GDP – after showing a down turn in 2011-12 will rebound quickly as India consolidates fiscally and continues to rise slowly thereafter as the ratio of India’s working age population to overall population rises because of the demographic dividend.

On the issue of ‘comparative rating index for sovereigns’ (CRIS), the Economic Survey 2011-12 notes that India’s CRIS has seen a rise from 23.81 in 2007 to 24.52 in 2012. Since the CRIS is a comparative rating score, it means that vis-à-vis the rest of the world, India’s rating has risen by 2.8 per cent says the Survey. The changing profile of CRIS score across the world tells a major story about the changing map of the world economy in which emerging economies are moving into centre stage and becoming drivers of the global economy, notes the Survey.

With respect to investment in infrastructure sector, the Survey points out that Planning Commission has talked about a target of one trillion dollars of infrastructural investment during the Twelfth Five-Year Plan with about half of this being raised from the private sector.

The Economic Survey 2011-12 recommends contracts as central driver of modern economy. It also sees benefits of transparent pricing formula over price control. The Survey also says that land acquisition issues are vital for India’s manufacturing and industrial sector. “Keeping in mind the incentive structure in markets, the government’s aim must be to create a level playing field, provide the essential infrastructural facilities and a non-interfering bureaucracy and then enable the industrial sector to flourish on its own” recommends the Survey.

Indian Economy Holds out Despite Global Uncertainty

The big story of the last decade for India has been its arrival on the global scene and there was no looking back from the first years of the first decade of the 21st Century. The Economic Survey 2011-12 tabled by the Finance Minister, Shri Pranab Mukherjee in the Lok Sabha today outlined the state of global economy and India’s position therein. The Survey has charted out not only the new opportunities but also the new challenges and responsibilities that India faces in the current global economic scenario.

The Survey observes that, as per the IMF, at a growth rate of 7 per cent, India is projected to be the second fastest growing major economy after China. The share of India in global merchandise exports has increased from about 0.5 per cent in 1990 to 1.5 per cent in 2010. Moreover, 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, which as a whole now account for one-half of world output.

The Economic Survey states that after the opening of the economy in the early 1990s, India has begun to appear as a player of significance in the global economy. The country’s exports have begun to climb, its foreign exchange reserves, which for decades had hovered around 5 billion dollars, have gone up exponentially after the economic reforms and in little more than a decade have risen to 300 billion dollars. Indian corporations that rarely ventured out of India are suddenly investing all over the world and some even in the industrialized countries.

Given its size and its profile in the global economy, India will inevitably need to play an active role at global level, not just in the efforts towards resolving the current crisis but also in influencing the goals for the global economy on overarching macroeconomic issues such as trade, capital flows, financial regulation, climate change and governance of global financial institutions. India, the Survey points out, is already too much a part of global economy and polity and the developments in the world will affect India deeply and what India does will affect the world. Therefore, the Survey advises, there is a need for India to engage with the world in terms of action and ideas.

Reflecting upon the state of global economy, the Economy Survey states that there is an apprehension that the process of global economic recovery that began after the financial crisis of 2008 is beginning to stall and the sovereign debt crisis in the Euro zone area may persist for a while. The lower global growth forecast by the IMF for most countries in 2012 reflects the repeated bouts of uncertainty. In the medium term, challenges for the global economy continue to emanate from the way the Euro zone crisis is addressed. The high deficits and debts in Japan and the US and slow growth in high income countries in general, have not been resolved. The looming risk to the global outlook is also on account of the geo-political tensions centered on Iran that could disrupt oil supply and result in a sharp increase in oil prices and even disrupt supply routes.

Volatility in capital flows resulting from the spillover affects of monetary policy choices and other uncertainties in the advanced financial markets further impacted exchange rates and made the task of macro-economic management difficult in many emerging economies. This has brought out a new dimension of globalization in the post-financial crisis world, where easy monetary policy in one set of countries may result in inflation elsewhere due to cross-border capital flows.

The changes in composition of the global economy suggest a perceptible shift in the global balance of output of goods, especially manufacturing. While services, in particular financial services, continue to be largely concentrated in advanced economies, a large share in world population, coupled with higher growth, implies that the EMEs (Emerging Market Economies) and developing countries will increasingly account for incremental growth in the global market for goods and services. Even if the emerging economies, including India, witnessed a slow growth in 2011, growth prospects of most of these economies remain robust in the medium to long run due to various factors such as demographics and size of the domestic market, apart from high rates of investment and savings.

While stating that India has begun to be a more open economy over the years and has moved up the ranks, the Economic Survey observes that it is still poorest among the G-20. While the country has an advantageous demographic dividend, its low spend on Research and Development and innovation, low energy intensity of GDP, 80 per cent dependence on imports for petroleum products, dependence on global markets for food security and a need for sustained investment are some of the areas which will have to be addressed for the country to emerge as a Strong Global Player.

Labour Bureau Survey Indicates Upward Trend in Employment Since July 2009 Maintained

On the employment front, the country has been able to withstand the adverse impact of the global crisis and generate employment since July, 2009. The Labour Bureau conducted twelve quarterly quick employment surveys to assess the impact of the economic slowdown on employment in India. These surveys indicate that the upward trend in employment since July 2009 has been maintained. This is stated in Economic Survey 2011-12, presented by the Finance Minister, Sh. Pranab Mukherjee, in the Lok Sabha today. The results for selected sectors i.e. textiles including apparel, leather, metals, automobiles, gems and jewellery, transport information technology (IT)/business process outsourcing (BPO) and handloom/powerloom are as follows:

1. Overall employment in September, 2011 over September, 2010 has increased by 9.11 lakh, with the highest increase recorded in IT/BPO (7.96 lakh) sector followed by 1.07 lakh in Metals, 0.71 lakh in Automobiles, 0.08 lakh in Gems & jewellery and 0.07 lakh in Leather industries during the period.

2. An upward trend in employment has been continuously observed since July 2009. During the quarter July to September 2011, employment has increased in respect of all sectors except Leather and Transport where there was a marginal fall. The overall employment has increased by 3.15 lakh during the quarter. At the sectoral level, the maximum increase of 2.04 lakh in employment during the period September, 2011 over June, 2011 was in IT/BPO sector, followed by increase of 0.42 lakh in Textiles including Apparels, 0.38 lakh in Metals, 0.22 lakh in Automobiles, 0.09 lakh in Handloom/Powerloom, 0.07 lakh in Gems & Jewellery.

3. In the export oriented units, the employment at the overall level has increased by 1.96 lakh whereas in the non-exporting units, it has increased by 1.16 lakh during the period September, 2011 over June, 2011.

4. Overall estimated employment in all selected sectors has experienced a net addition of 23.58 lakh during the period October, 2008 (first survey) to September, 2011 (twelfth survey).

The Economic Survey observes that employment growth in the organized sector, public and private combined, has increased by 1.9 % in 2010, which is lower than the annual growth for the previous year. The annual growth rate for the private sector was much higher than that for the public sector. However, in respect of both sectors, annual increase in employment had slowed down in 2010 vis-à-vis 2009. The share of women in organized-sector employment was 20.4 per cent in 2010 March end and has remained nearly constant in recent years.

Lower Carbon Sustainable Growth to be Central Element of 12th Plan

The Economic Survey 2011-12, presented in Parliament today, suggests to make lower carbon sustainable growth a central element of our Twelfth Five Year Plan commencing in April 2012. The Survey points out that India’s per capita CO2 emissions are much lower (1.52 CO2 tons) than those of the developed countries even if historical emissions are excluded. Nevertheless, India has already taken a number of actions on voluntary basis with own resources in pursuance of a sustainable development strategy. Like adoption of the National Action Plan on Climate Change (NAPCC) in 2008 which has both mitigation and adaptation measures an announcement of a domestic goal of reducing the emission intensity of its GDP by 20-25 per cent of the 2005 level by 2020 is a noteworthy measure.

A Chapter on Sustainable Development and Climate Change has been first time introduced in the annual Economic Survey. This new chapter reflects the growing challenges of sustainable development and climate change. Pressures on land, air, water, forests and loss of plant and animal habitant are growing. The Survey cautions that a warming planet is already causing adverse effects, such as more frequent extreme weather events. It comments that the science and evidence of climate change are compelling. Citing the Durban meeting in December 2011 which has set some directions for appropriate responses to climate change, the Survey hopes that the Earth Summit in Rio in June 2012 will take stock of sustainable development priorities globally. Taking an optimist view, the Survey hopes that the Twelfth Five Year Plan will be setting out India’s priorities for a sustainable and inclusive, lower carbon development path. It says, as a responsible and enlightened member of the international community, India showed flexibility along with other developing countries toward the success of the Durban Conference. Developed countries are expected to reciprocate the flexibility shown by G-77 countries and India at Durban.

Commending further India’s sensitivity to global concerns, the Survey says that India has done well on all such counts of stewardship over the past decades. It has followed a conscious path in response to the key environmental issues. Sustainable development in terms of environmental concerns has been a recurring theme in Indian policy and planning. Economic reforms since 1980s have accelerated growth and incomes. Social well-being has improved broadly, as measured by gains in life-expectancy. India has stepped up protection of its natural environment, such as its forests.

Outlining the challenges ahead, the Survey comments that the 2009 State of the Environment Report by the Ministry of Environment and Forests (MoEF) clubs the issues under five key main challenges faced by India, which are climate change, food security, water security, energy security and managing urbanization. Broad-based economic and social development is ultimately the answer for greater environmental sustainability. Economic pricing of energy and other resources will be a key to switching to more sustainable development path. New technologies will be crucial, mostly in the private sector. But social justice will also require stepped-up public spending on energy access and other elements, the Survey suggests.

Economic Survey Forecasts 2.5 Percent Growth for AGRO Sector

The higher levels of agricultural output and ample food stocks as on date and the levels of reservoir storage this year augur well for bringing down headline inflation in the next fiscal. It has been observed by the Economic Survey 2011-12 presented today by the Union Finance Minister Shri Pranab Mukherjee in the Parliament. However, the Survey expresses concern over the growth rate in agriculture sector which has fallen short of planned target inspite of record food grain production. During the current Five Year Plan it is estimated at 3.28 percent against the target of 4 percent. According to Survey, agriculture and allied sectors are estimated to achieve a growth rate of 2.5 percent during 2011-12. Agriculture including allied activities accounted for 13.9 percent of Gross Domestic Products (GDP) in 2011-12.

The successive high production levels boosted the stock position of foodgrains in the central pool and as on February 1, 2012 it was 55.2 million tonnes comprising 31.8 million tonnes of rice and 23.4 million tonnes of wheat. This is adequate for meeting the requirements under the targeted public distribution system (TPSD) and welfare schemes during the current financial year. The Survey says that as per the Second Advance Estimates, production of foodgrains during 2011-12 has been estimated at 250.42 million tonnes.

Expressing concern over decline in the area under food grains cultivation the Survey calls for speedy improvement in yield through adequate investment in research and development. Pooling of many land holdings may yield better results for which land laws for leasing with sufficient safeguards in place should be considered. Addressing infrastructure requirements in the agriculture sector, especially storage, communication, roads and market should be priority.

According to the Survey, the outlook for the next fiscal remains bright but given the rapidly rising levels of demand for food there is a need to consider some policy options to ensure brighter medium term outlook. These options could, inter alia, be regular imports of agricultural commodities in relatively smaller quantities with an upper ceiling on quantity should to be decided annually, relatively well in advance, after assessing the likely domestic situation in terms of production and consumption requirements. According to Survey, “improving mandi governance, promoting inter-state trade by eliminating multiple levies, taking perishables out of the ambit of the APMC Act, developing a ‘farm-to-fork’ retail supply system, and addressing the investment gaps related to post harvest infrastructure for agricultural produce including through FDI in multi-brand retail” may help in improving agriculture commodities management in the country.

Education: Reform Process Continues in 2011-12

In the primary education sector, the reforms initiated in 2010-11, continued during the year 2011-12. This is stated in Economic Survey 2011-12, presented by the Finance Minister, Sh. Pranab Mukherjee, in the Lok Sabha today. The expenditure on education as a proportion of GDP by General government has increased from 2.72 per cent in 2006-07 to 3.11 per cent in 2011-12 (BE).

As per the Survey, the Sarva Shiksha Abhiyan (SSA) norms have been revised to correspond with the provisions of the RTE Act including norms for sanctioning additional teacher posts, classrooms, teaching-learning equipment to enable states to move to an eight-year elementary education cycle, enhancement of academic support for better school supervision, and expansion of Kasturba Gandhi Balika Vidhyalaya (KGBVs). The National Council for Teacher Education (NCTE) has been notified as the academic authority for teacher qualifications. Also, a country wide campaign has been launched for raising public awareness about Right to Education (RTE) and to ensure all schools become RTE compliant. The number of out-of-school children has come down from 134.6 lakh in 2005 to 81.5 lakh in 2009 as per an independent study conducted by the SRI-IMRB.

The Survey states that as part of the National Mission in Education through ICT, content generation and connectivity along with provision for access devices for institutions and learners are the major components of the Mission. A major development during the year has been the launch of Aakash, the low cost access-cum-computing device that was launched on 5 October, 2011. Besides so far nearly 400 universities have been provided 1 Gbps connectivity or have been configured under the scheme and more than 14,000 colleges have also been provided VPN connectivity. Creation of e-content for 996 courses in Phase II in engineering, sciences, technology, humanities, and management has been undertaken by IIT Madras. The Consortium for Educational Communication (CEC) has been tasked with creation of e-content for 87 undergraduate subjects. More than 2000 e-journals and 55,000e-books from 297 publishers have been made available online under this programme.

The Survey points out some institutions like the IITs have, in order to promote innovation, created technology business incubation facilities in their campuses. These are providing to be focal points amongst students and faculty for working towards taking some of their applied research to the market through the creation of business models for the same. These efforts need to be expanded greatly (a) by scaling up the previously successful centres of such innovations, and (b) by creating many such centres across the higher technical institutions in the country.

Summary of Economic Survey

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. India’s foreign trade performance will remain a key driver of growth. During the first half of 2011-12, India’s 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, country’s 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. Country’s 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.
 Public Health Investment Increases Substantially:
 There has been an increase in public health investment in the country. The combined revenue and capital expenditure of the Centre and states on medical and public health, water supply and sanitation and family welfare has increased from Rs.53,057.80 crore in 2006-07 to Rs. 96,672.79 crore in 2010-11 (BE). In addition to increasing resource allocation for the Health Sector the Government is also playing a critical role in facilitating access to health care delivery channels, public and private through subsidized health, insurance schemes like the RSBY for providing basic health care to poor and marginal workers. The Rasthriya Swasthaya Bima Yojana (RSBY) is being extended to cover MGNREGA beneficiaries and beedi workers. This has been stated in Economic Survey 2011-12, presented by the Finance Minister, Sh. Pranab Mukherjee in the Lok Sabha today.

The Survey highlights that the Janani Shishu Suraksha Karyakram (JSSK) was launched on 1st June, 2011 to give free entitlements to pregnant women and sick newborns for cashless delivery, C-Section, drugs and consumables, diagnostics, diet during stay in the health institutions, provision of blood, exemption from user charges, transport from home to health institutions, transport between facilities in case of referral, and drop back from Institutions to home. A sum of Rs. 1437 crore has been allocated to the states during 2011-12 under the JSSK. In order to reach out to difficult, inaccessible, backward and under-served areas with poor health indicators, 264 high focus districts in 21 states have been identified based on concentration of SC/ST population and presence of left wing extremism for focused attention. A Mother and Child Tracking system has been introduced, which provides complete data of the mothers with their addresses, telephone numbers, etc. for effective monitoring of ante-natal and post-natal check-up of mothers and immunization services.

The Survey also points out that the Janani Suraksha Yojana (JSY), which targets lowering of Maternal Mortality Ratio by ensuring that deliveries are conducted by skilled birth attendants, has shown rapid growth in last three years, with number of beneficiaries rising to 106.96 lakh in 2010-11 from 90.37 lakh in 2008-09. The issue of governance, transparency, and grievance redressal mechanisms are now the thrust areas for the JSY.