Review of the Economy 2010-11 – Highlights
Economy expected to grow at 8.6 per cent in 2010-11 and 9.0 % in 2011-12
o Agriculture expected to grow at 5.4% in 2010-11 and 3.0% in 2011-12.
o Industry expected to grow at 8.1% in 2010-11 and 9.2% in 2011-12.
o Services expected to grow at 9.6% in 2010-11 and 10.3% in 2011-12.
Slow recovery in global economic and financial situation.
Rising domestic savings and investment chief engines of growth
o Investment rate expected to be 37.0% in 2010-11 and 37.5% in 2011-12.
o Domestic savings rate expected to be over 34% in 2010-11 and 34.7% in 2011-12.
Current Account deficit estimated at 3.0% of GDP in 2010-11 and 2.8% of GDP in 2011-12
o Merchandise trade deficit projected to be $ 132.0 billion or 7.7% of the GDP in 2010-11 and $151.5 billion or 7.7% of GDP in 2011-12.
o Invisibles trade surplus projected to be $ 81.3 billion or 4.8% of the GDP in 2010-11 and $95.7 billion or 4.8% in 2011-12.
Capital Flows can be readily absorbed by financing needs of the high growth of the Indian Economy.
o Against the level of $47.8 billion in 2009-10, the capital inflows projected to be $ 64.6 billion for 2010-11 and $76.0 billion for 2011-12.
o Against accretion to reserves of $13.4 billion in 2009-10, projected to be $12.1 billion in 2010-11 and $20.2 billion in 2011-12.
Inflation rate projected at 7.0 % by March 2011
o The declining trend in food prices particularly that of the vegetables will result in lower food inflation.
o Manufactured goods inflation has remained low. Considerable care from the policy side has however to be taken to ensure that the manufactured goods inflation remains below 5 per cent in 2011/12.
Monetary Policy to complete the process of exit and operate with bias toward tightening.
o Liquidity conditions are taut enough for monetary policy signals to be appropriately transmitted to the financial sector.
o Monetary and fiscal policies have to be appropriately tight to protect the economy from inflation.
o Monetary policy has an important role to play even in situations where inflation is triggered by supply constraints.
Current year fiscal adjustment may not be a problem, the challenge is of adhering to the Finance Commission’s targets with credible expenditure management.
o Total Central revenues registering an increase of 62.9 per cent in (April –Dec) 2010-11 over the corresponding period last year.
o Capital Expenditure registered a sharp increase of 64.6 per cent (April –Dec) in 2010-11.
o Fiscal deficit outcome for 2010-11 could be marginally better than the budget estimates.
o The consolidated fiscal deficit is likely to be 7.5 to 8 per cent of GDP for 2010-11.
o There is considerable urgency in the implementation of goods and services tax (GST).
o Budgeted level of Fiscal Deficit and Revenue Deficit still beyond comfort zone.
To sustain a growth rate of 9.0 per cent, steps required are:
o Containing inflation by focusing both on monetary and fiscal policies and supply side management.
o The pace of infrastructure creation has to be stepped up with renewed focus on the power sector.
o Continue efforts to contain Current Account Deficit (CAD) at 2-2.5 per cent of GDP and in parallel encourage flow of external investments into the country.
o Greater attention to agriculture including on seed development, management of water and soil fertility and improving delivery system.