Releasing the Economic Outlook in New Delhi on August 1, 2011, Dr. Rangarajan said that the agriculture sector which witnessed the growth at 6.6 per cent during 2010 – 11 would grow at the rate of 3 per cent during the current fiscal year. Apart from Agriculture, Industrial sector would see a projected growth at the rate of 7.1 per cent during this year while last year the growth was 7.9 per cent while the services sector grew at the rate of 9.4 per cent and has been projected at 10 per cent during this year.
“The projected growth rate of 8.2 per cent, though lower than the previous year, must be treated as high and respectable, given the current world situation,” Dr. Rangarajan commented.
Commenting on the boundless inflation, Dr. Rangarajan said that the headline inflation rate would continue to be at 9 per cent in the month of July-October 2011. There will be some relief starting from November and will decline to 6.5 per cent in March 2012. “Important role for fiscal policy to contain demand pressure and it need to ensure that fiscal deficit does not exceed the budgeted level,” he cautioned.
Here are some highlights of the report:
- Economy to grow at 8.2 per cent in 2011-12
- Agriculture grew at 6.6 per cent in 2010-11. Projected to grow at 3.0 per cent in 2011-12
- Industry grew at 7.9 per cent in 2010-11. Projected to grow at 7.1 per cent in 2011-12
- Services grew at 9.4 per cent in 2009-10. Projected to grow at 10.0 per cent in 2011-12
- The projected growth rate of 8.2 per cent, though lower than the previous year, must be treated as high and respectable, given the current world situation.
- Global economic and financial situation unlikely to improve
- To keep the economy growing at 9 per cent, it is important to increase fixed investment rate
- Investment rate projected at 36.4 per cent in 2010-11 and 36.7 per cent in 2011-12
- Domestic savings rate as ratio of GDP projected at 33.8 per cent in 2010-11 and 34.0 per cent in 2011-12
- The 2011 monsoon projected to be in the range of 90 to 96 per cent of Long Period Average. As a result farm sector output expected to grow at 3 per cent
- The revised series (2004/05) for Index of Industrial Production shows an output growth pattern that is fairly different from what the old series (1993/94) had indicated.
- The output growth was grossly underestimated by the old series in 2007-08 and overestimated in 2008-09 and 2009-10.
- The impact of the global crisis on industrial output was much stronger than had been indicated by the old series
- In 2010-11 the output growth was higher at 8.2 per cent against 7.8 per cent indicated by the old series.
- Current Account deficit is $44.3 billion (2.6 per cent of GDP) in 2010-11 and projected at $54.0 billion (2.7 per cent of GDP) in 2011-12
- Merchandise trade deficit is $ 130.5 billion or 7.59 of the GDP in 2010-11 and projected at $154.0 billion or 7.7 per cent of GDP in 2011-12
- Invisible trade surplus is $ 86.2 billion or 5.0 per cent of the GDP in 2010-11 and projected at $100.0 billion or 5.0 per cent in 2011-12
- Capital flows at $ 61.9 billion in 2010-11 and projected at $72.0 billion in 2011-12
- FDI inflows projected at $35 billion in 2011/12 against the level of $23.4 billion in 2010-12
- FII inflows projected to be $14 billion which is less than half that of the last year i.e $30.3 billion
- Accretion to reserves was $15.2 billion in 2010-11. Projected at $18.0 billion in 2011-12
- Inflation rate projected at 6.5 per cent in March 2012.
The headline inflation rate would continue to be at 9 per cent in the month of July-October 2011. There will be some relief starting from November and will decline to 6.5 per cent in March 2012.
- Available food stocks to be liberally released
- Important role for fiscal policy to contain demand pressure. Need to ensure that fiscal deficit does not exceed the budgeted level
- RBI will have to continue to follow a tight monetary policy till inflation shows definite signs of decline
- Achieving fiscal targets set in 2011/12 budget estimates to present a significant challenge
- For 2011/12, budget estimates of fiscal deficit for Centre - 4.7 per cent; States- 2.1 per cent and consolidated fiscal deficit including off budget liabilities - 6.8 per cent
- Government to redouble efforts to collect larger revenue, resolve cases to reduce tax arrears
- Minimize avoidable expenditures and initiate measures to increase revenues
- Resolve issues with states and introduce Goods and Services Tax
- Reforms in power sector distribution system to limit the liabilities of state governments
Some key issues of concern:
Convergence of growth rates of states
An analysis of the recent data indicates that while most of the lower income states have shown stronger growth rates, several of the higher income states have also shown an increase
Current Account Deficit
Given our growth needs, a moderate trade deficit and CAD are inevitable. To finance the CAD, foreign investment flows need to be promoted. However CAD to be contained below 2.5% of the GDP
Power Sector
The India growth story inextricably linked to the power sector
Immediate policy interventions required for ensuring coal availability for the power plants, land acquisition and environmental clearances and revision of power tariff by states to reduce high AT&C losses
Increased focus on non conventional energy
Food Security
Need to grant the poor a legal entitlement to food through an appropriate legislative enactment
Availability of grain to be kept in mind while deciding legal entitlements
Reforms in PDS important to strengthen distribution. Computerization, introduction of smart cards and using unique identification numbers for the beneficiaries are important interventions.
Table 1: GDP Growth - Actual & Projected
At constant 2004/05 prices
| Year-on-year rates of growth in per cent |
| |||||
|
| ANNUAL RATES | 2008-09 | 2009-10 | 2010-11 | 2011-12 |
|
|
|
|
| QE | Rev | Proj. |
|
| 1 | Agriculture & allied activities | -0.1 | 0.4 | 6.6 | 3.0 |
|
| 2 | Mining & Quarrying | 1.3 | 6.9 | 5.8 | 6.0 |
|
| 3 | Manufacturing | 4.2 | 8.8 | 8.3 | 7.0 |
|
| 4 | Electricity, Gas & Water Supply | 4.9 | 6.4 | 5.7 | 7.0 |
|
| 5 | Construction | 5.4 | 7.0 | 8.1 | 7.5 |
|
| 6 | Trade, Hotels, Transport, Storage & Communication | 7.5 | 9.7 | 10.3 | 10.8 |
|
| 7 | Finance, insurance, real estate & business services | 12.5 | 9.2 | 9.9 | 9.8 |
|
| 8 | Community & personal services | 12.7 | 11.8 | 7.0 | 8.5 |
|
| 9 | Gross Domestic Product (factor cost) | 6.8 | 8.0 | 8.5 | 8.2 |
|
| 10 | Industry (2 + 3 + 4 + 5) | 4.4 | 8.0 | 7.9 | 7.1 |
|
| 11 | Services (6 + 7 + 8) | 10.1 | 10.1 | 9.4 | 10.0 |
|
| 12 | Non-agriculture (9 - 1) | 8.2 | 9.4 | 8.9 | 9.0 |
|
| 14 | GDP (factor cost) per capita | 5.0 | 6.2 | 6.8 | 6.4 |
|
|
| Some Magnitudes |
| ||||
| 15 | GDP at factor cost - 2004/05 prices in Rs lakh crore (or Trillion) | 41.6 | 44.9 | 48.8 | 52.8 | |
| 16 | GDP market & current prices in Rs lakh crore (or Trillion) | 55.8 | 65.5 | 78.8 | 89.8 | |
| 17 | GDP market & current prices in US$ Billion | 1,223 | 1,385 | 1,732 | 1,994 | |
| 18 | Population in Million | 1,164 | 1,183 | 1,202 | 1,222 | |
| 19 | GDP market prices per capita current prices | 47,975 | 55,384 | 65,517 | 73,460 | |
| 20 | GDP market prices per capita in current US$ | 1,051 | 1,171 | 1,441 | 1,632 | |
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