vIndianz.com (25 Feb, 2010) — New Delhi: The Economic Survey, presented by Finance Minister Pranab Mukherjee in Parliament ob Thursday and enthused by reforms and the strong fundamentals, predicted that India would bounce back to a high nine per cent growth in 2011-12 on the way tobecoming world’s fastest growing economy in four years.
The document, which assesses the state of the economy, warned that high food prices would rise further over next few months and criticised the food management policies that have led to “unacceptably” high prices of items like sugar. Food inflation is at present hovering close to 18 per cent.
The pre-budget Survey (2009-10), accordded to Press Trust of India, also recommended a “gradual rollback” of stimulus measures after assessing the impact on each sector.
Projecting the economic growth to touch up to 8.75 per cent in 2010-11 and nine per cent in the next year, the Survey said: “It is entirely possible for India to move into the rarefied domain of double digit growth and even attempt to don the mantle” of the fastest growing economy in the world within the next four years.”
It, however, expressed concern over rising prices, saying that a major concern during 2009-10 was the emergence of high double digit food inflation.
Referring to projection of 7.2 per cent growth of the economy in 2009-10, the Survey said, “The fast-paced recovery of the economy underscores the effectiveness of the policy response of the government in the wake of the financial crisis.”
Gradual roll back of stimulus
The Economic Survey on Thursday suggested gradual roll back of stimulus steps unveiled in the wake of the global financial meltdown.
This, it said, would help cut down the fiscal deficit that is estimated at 6.8 per cent of GDP in 2009—10 that was fed by a fall in indirect tax collections and delay in 3G auction.
“The fast—paced recovery of the economy underscores the effectiveness of the policy response of the government in the wake of the financial crisis. Moreover, the broad—based nature of the recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15 to 18 months,” said the Survey, tabled in Parliament.
This was part of the policy response to the global slowdown, “so as to put the economy back on the growth path of nine per cent per annum,” it added.
With the stimulus measures primarily comprising cut in indirect taxes, the Survey said there is likely to be a shortfall in tax collections under these heads.
On the other hand, non—tax revenue would also take a hit due to delay in realisation of spectrum auction, it said. 3G mobile spectrum auction was expected to fetch Rs 35,000 crore to the government and is now slated for April 9, 2010.
However, the Survey hoped to rein in fiscal deficit at just about Rs four lakh crore, which is 6.8 per cent of GDP (6.5 per cent in the new series of GDP) with the help of some restraint on expenditure.
ES for freeing food, diesel prices
The Economic Survey asked the government to decontrol prices of food, fertiliser, diesel and kerosene, saying subsidies given to these sectors have a “questionable” impact.
Freeing prices from government control could help deploy large resources for financing other vital activities in the economy that could promote productivity and eradicate poverty.
“The impact of these (food, fertilisers, kerosene and diesel) subsidies, using the yardstick of poverty mitigation is, however, questionable”, the Survey said.
The high level of subsidies “now constitutes a major fiscal burden and tends to crowd out the government’s ability to finance other vital activities in the economy that could promote productivity and eradicate poverty,” it added.
Already, the government’s resources are strained due to various fiscal stimulus and the Survey has separately noted that high growth environment creates scope for partial rollback of these stimuli.
Pointing out it is a ‘mistake’ to assume that a subsidy scheme has to be coupled with price control, the Survey said: “If we want to ensure that poor consumers are not exposed to the vagaries of the market, the best way to intervene is to help the poor ‘directly’ instead of trying to control prices”.
Once the government becomes involved in setting the price of a commodity, the Survey said, this becomes a matter of politics and lobbying, which cumulatively adds to the distorting and hence prices are best left to the market.
Dubai crisis could affect trade
The Dubai debt crisis is likely to have “some impact” on India’s exports and imports as the gulf region is the country’s largest trade partner, the Economic Survey 2009-10 has said.
“There could be some impact on India’s exports and imports, keeping in view the significant share of the UAE in India’s international trade,” the survey said.
The financial crisis in Dubai erupted in November last year with the conglomerate Dubai World asking creditors for six months to repay USD 59 billion debts.
The United Arab Emirates (UAE) accounts for about 10 per cent of India’s $490 billion total trade in 2008-09. While imports from the region amounted to $23.79 billion, exports were at $24.47 billion, according to official figures.
Besides, the Survey said, remittances would also be impacted by the Dubai crisis.
The Gulf accounts for nearly one-third of total remittances into the country and 40 per cent of the population in the region is comprised of Indians.
The total money remitted to India in 2008-09 was $46 billion.
“Indian expats comprise a large percentage of the total workforce in Dubai, the crisis may lead to salary cuts or job losses for Indian workers in the construction sector with consequent effect on remittances and NRI deposits,” it said.
However, the Survey said, the impact of the crisis on India’s realty sector would be “modest”.
Highlights of Economic Survey 2009-10:
India could be the fastest growing economy on four years
Economy likely to grow by up to 8.75 per cent in 2010-11
Full recovery; return to 9 per cent growth in 2011-12
Broad recovery gives scope for gradual stimulus roll back
High double-digit food inflation in 2009-10 major concern
Signs of food inflation spreading to other sectors
Farm & allied sector production falls 0.2% in 2009-10
Need serious policy initiatives for 4% agriculture growth
Moots direct food subsidy via food coupons to households
Favours making available food in open mkt
Favours monthly ration coupons usable anywhere for poor
Gross fiscal deficit pegged at 6.5 pc of GDP in 2009-10
India 10th largest gold holding nation at 557.7 tonnes
Exports in April-December 2009 down 20.3 per cent
Imports in April-December 2009 down 23.6 per cent
Trade gap narrowed to USD 76.24 bn in April-December.
32.5% savings & 34.9% investment (of GDP in 2008-09) put India in league of world’s fastest growing nations.
Govt initiates steps to boost private investment in agri
Wants credit available for pvt sector to invest in agriculture
Slowdown in infrastructure that began in 2007, arrested
Domestic oil production to rise 11 per cent in 2009-10
Gas output up 52.8 per cent to 50.2 billion cubic meters with RIL starting production
India world’s 2nd largest wireless network with 525.1 million mobile users
Virtually every second Indian has access to phone
Auction for 3G spectrum to provide existing and foreign players to bring in new technology and innovations.
Further Reading- Economists: Lower growth, higher oil prices coming – Boston Herald
- Dubai World catastrophe dreadful news for Kerala’s economy
- Data signals weakness in US recovery in April – Reuters
- Inflation jumps to 4.78 per cent in November
- GAO: Stimulus contractors owe $750M in back taxes – CNN
- OECD cuts growth forecast for Britain – Financial Times
- Abu Dhabi gives Dubai $10 bn in surprise aid
- 7.31% inflation indicator confusing: ADB
- High Unemployment Claims, Food Prices Slow Economy – ABC News
- Food prices might begin softening from January: Montek
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