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Summary of Economic Survey 2011-12
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Ø Indian economy…estimated to
grow by 6.9% in 2011-12…due to weakening industrial growth….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.
Ø 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
Ø With
agriculture and services continuing to perform well, the slowdown can be
attributed almost entirely too weakening industrial growth.
Ø 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%.
Ø Similarly, agriculture and allied sectors
are estimated to achieve a growth rate of 2.5% in 2011-12 with food grains
production likely to cross 250.42 million tonnes owing to increase in the
production of rice in some States.
Ø The
industrial sector has performed poorly, retreating to a 27% share of the GDP.
Ø Overall
growth during April-December 2011 reached 3.6% compared to 8.3% in the
corresponding period of the previous year.
Ø 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.
Ø Food inflation, in
particular, has come down significantly, with most of the remaining WPI
inflation being driven by non-food manufacturing products.
Ø Monetary policy was tightened by the Reserve
Bank of India (RBI) to control inflation and curb inflationary expectations.
Ø The growth rate of
investment in the economy is estimated to have registered a significant
decline during the current year.
Ø 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.
Ø 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.
Ø 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.
Ø 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.
Ø 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.
Ø 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.
Ø 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 .
Ø 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.
Ø 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.
Ø Other key areas include the
deepening of domestic financial markets, especially corporate bond market and
attracting longer-term inflows from abroad.
Ø Efforts at attracting dedicated
infrastructure funds have begun.
Ø 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.
Ø 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.
Ø 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.
Ø 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.
Ø Climate change challenges ahead are large
and India is doing more than its fair share in reducing its energy-intensity
of growth.
Ø 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.
Ø 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.
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