Dr. C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister released the document ‘Review of the Economy-2009-10’ at a Press Conference in New Delhi today. Following are the highlights of the document:
Strong rebound in the second half of 2009-10 drives growth rate upwards
- Strong rebound in the third and fourth quarter especially industry
- Outcome in the farm sector much better than feared earlier in part due to proactive measures by government
Projected growth 7.2% in 2009/10, 8.2% in 2010/11 and 9.0% in 201 1/12
In 2009/10:
- Agriculture : -0.2 % (1.6% in 2008/09)
- Industry (including construction) : 8.6% (3.9% in 2008/09)
- Services: 8.7 % (9.8% in 2008/09)
Growth may be even higher than 7.2%, driven by strong revival in manufacturing and construction
Developed countries have come out of recession but it is a weak recovery with downside risks to growth
- Financial markets nervous about fiscal sustainability – massive increase in risk aversion
- Worsening of budgetary positions in advanced economies
- Speculative pressure on commodity prices, especially the sharp rise in crude oil prices
Sharp fall in investment rate in 2008/09 reversed in 2009/10
- Estimated investment rate in 2009/10: 36.2% (34.9% in 2008/09). Will pick up with improvement in domestic conditions.
- Estimated savings rate 34.0% in 2009/10 (32.5% in 2008/09) – will improve in the subsequent years due to fiscal consolidation by government
Damage to Kharif output restricted, Rabi output to be higher than last year
- Wheat output will be almost equal and pulses slightly higher than last year
- Output of Kharif rice lower by 12 million tonnes but Rabi rice higher than last year. Output of oilseeds, coarse cereals and sugarcane will be lower
- Government wheat and rice stocks to be comfortable
Strong recovery in manufacturing output will drive growth
- Recovery in manufacturing output from June 2009
- Q3 growth 14.3% (0.5% in 2008/09) , Q4 will be higher at 14.6% (0.3% in 2008/09)
Current Account Deficit : – 2.2 % of GDP in 2009/10 ( – 2.4 % in 2008/09)
- Export recovery slower than expected, projected at $168.7 billion in 2009/10
- Imports to show significant improvement in Q4. Projected at $296.8 billion in 2009/10
- Projected merchandise trade deficit for 2009/10:$ 128.1 billion or 9.8 % of GDP.
- Projected net invisibles: $98.6 billion. Strong growth in remittances and recovery in service exports.
Capital inflows of $48.5 billion in 2009/10 ($8.7 billion in 2008/09)
- Net accretion to reserves : $17.6 billion ( – $18.9 billion in 2008/09)
Surge in food inflation
- Primary food inflation 17.9% in January 2010, manufactured food products 26.4% in December 2009. CPI-IW 15% in December 2009.
- In the short run, government must ease supply by increased distribution from stocks and in the medium term by improving productivity.
- Energy index and manufacturing goods index (except food) did not rise much for most of 2009-10 but are now moving up.
- Danger of significant transfer of food price inflation to the general price level in 20 10/11.
- Risk of rise in international commodity prices
Credit expansion pick up in second half and strong revival in mobilization from capital markets
- Recovery in economy necessitates a more neutral monetary policy.
- RBI action will depend on pick up in credit, liquidity conditions and further pressure on prices.
- Investment climate to see rapid recovery.
Need for fiscal correction
- Projected consolidated fiscal deficit: 10.3% in 2009/10 (10.4% in 2008/09).
- Debt-GDP ratio 76.6% in 2009/10 (70.6% in 2000-01)
- Large revenue and fiscal deficits of past two years unsustainable.
- Possible reduction of fiscal deficit of centre by 1.0-1.5% in 2010/11
- Feasible to reduce expenditure-GDP ratio by 1%
- Expand service tax coverage. Unify the rate structure of CENVAT and service tax and peg it between the current and the previous higher level.
Some Policy Options – management of prices, focus on agriculture and power
- To cool down food inflation
> Timely release of foodgrain in sufficient quantity below prevailing market prices
> Advance planning for timely imports at early signals of shortfall in production
> Develop a distribution channel to supplement the PDS
- Two major constraints to growth in the medium and long term – agriculture and power
> Technology and organizational factors major constraints to sustainable agricultural growth. Improve agricultural research by stepping up fund allocation, revamping content and extension systems.
> Two constraints to capacity augmentation in power – shortage of domestic manufacturing capacity of power plant equipment and administrative issues like land acquisition and environmental clearances
> Important to scale up nuclear power generation
TABLE-A
GDP Growth – Actual & Projected
Unit: per cent
| 2005- 2006- 2007- 2008- 2009-
06 07 08 09 10 |
2010- 11 |
2011- 12 |
||
| QE AE f | f | |||
| Year-on-year Growth Rates | ||||
| 1 | Agriculture & allied activities | 5.2 3.7 4.7 1.6 –0.2 | 5.0 | 4.0 |
| 2 | Mining & Quarrying | 1.3 8.7 3.9 1.6 8.7 | 7.5 | 8.0 |
| 3 | Manufacturing | 9.6 14.9 10.3 3.2 8.9 | 8.9 | 9.2 |
| 4 | Electricity, Gas & Water Supply | 6.6 10.0 8.5 3.9 8.2 | 8.0 | 9.0 |
| 5 | Construction | 12.4 10.6 10.0 5.9 6.5 | 9.0 | 10.0 |
| 6 | Trade, Hotels, Transport, Storage & Communication | 12.1 11.7 10.7 7.6 8.3 | 9.0 | 11.0 |
| 7 | Finance, insurance, real estate | 12.8 14.5 13.2 10.1 9.9 | 10.0 | 11.0 |
| & business services | ||||
| 8 | Community & personal services | 7.6 2.6 6.7 13.9 8.2 | 7.0 | 7.0 |
| 9 | Gross Domestic Product at factor cost | 9.5 9.7 9.2 6.7 7.2 | 8.2 | 9.0 |
| 10 | Industry (2 + 3 + 4 + 5) | 9.3 12.7 9.5 3.9 8.6 | 8.7 | 9.2 |
| 11 | Services (6 + 7 + 8) | 11.1 10.2 10.5 9.8 8.7 | 8.8 | 10.1 |
| 12 | Non-agriculture (9 – 1) | 10.5 11.0 10.2 7.7 8.5 | 8.8 | 9.8 |
| 14 | GDP (factor cost) per capita | 7.8 8.1 7.7 5.2 5.7 | 6.7 | 7.5 |
| Some Magnitudes | ||||
| 15 | GDP at factor cost – 2004/05 prices in Rs lakh crore (or | 32.5 35.6 38.9 41.5 44.5 | 48.2 | 52.5 |
| Trillion) | ||||
| 16 | GDP market & current prices in | |||
| Rs lakh crore (or Trillion) | 37.1 42.8 49.5 55.7 61.6 | 70.1 | 80.2 | |
| 17 | GDP market & current prices in US$ Billion | 837 947 1,231 1,222 1,312 | 1,557 | 1,886 |
| 18 | Population in Million | 1,106 1,122 1,138 1,154 1,170 | 1,187 | 1,203 |
| 19 | GDP market prices per capita | |||
| current prices | 33,51 38,18 43,47 48,30 52,67
2 2 9 5 5 |
59,041 | 66,621 | |
| 20 | GDP market prices per capita | |||
| in current US$ | 757 844 1,082 1,059 1,121 | 1,312 | 1,567 | |
Note: QE refers to the Quick Estimates for National Income released on 29 Jan 2010. AE refers to the Advance Estimate for National Income released on 8 Feb 2010. f stands for forecasts made by the Council.
Table B
Balance of Payments
Unit: US$ billion
| 2004/0 5 |
2005/06 | 2006/0 7 |
2007/08 | 2008/09 | 2009 / 10 | |||
| Apr- Sep | Oct-Mar | Total | ||||||
| Merchandise | 85.2 | 105.2 | 128.9 | 166.2 | 189.0 | 81.1 | 87.5 | 168.7 |
| Exports | ||||||||
| Merchandise | 118.9 | 157.1 | 190.7 | 257.6 | 307.7 | 139.4 | 157.4 | 296.8 |
| Imports | ||||||||
| Merchandise Trade | –33.7 | –51.9 | –61.8 | –91.5 | –118.7 | –58.2 | –69.9 | –128.1 |
| Balance | –4.7% | –6.2% | –6.5% | –7.4% | –9.7% | –9.8% | ||
| Net Invisibles | 31.2 | 42.0 | 52.2 | 75.7 | 89.9 | 39.6 | 59.0 | 98.6 |
| o/w Software & | 14.7 | 23.8 | 27.7 | 37.2 | 44.5 | 17.2 | 30.0 | 47.2 |
| BPO | ||||||||
| Private Remittances | 20.5 | 24.5 | 29.8 | 41.7 | 44.6 | 26.7 | 30.0 | 55.7 |
| Investment Income | –4.1 | –4.1 | –6.8 | –4.4 | –4.0 | –2.1 | –2.0 | –4.1 |
| Current Account | –2.5 | –9.9 | –9.6 | –15.74 | –28.7 | –18.6 | –10.9 | –29.5 |
| Balance | ||||||||
| –0.3% | –1.2% | –1. 0% | –1.3% | –2.4% | –2.2% | |||
| Foreign Investment | 13.0 | 15.5 | 14.8 | 45.0 | 3.5 | 32.1 | 15.2 | 47.3 |
| o/w FDI (net) | 3.7 | 3.0 | 7.7 | 15.4 | 17.5 | 14.1 | 6.0 | 20.1 |
| Inbound FDI | 6.0 | 8.9 | 22.7 | 34.2 | 35.0 | 21.0 | 15.0 | 36.0 |
| Outbound FDI | 2.3 | 5.9 | 15.0 | 18.8 | 17.5 | 6.8 | 9.0 | 15.8 |
| Portfolio capital | 9.3 | 12.5 | 7.1 | 29.6 | –14.0 | 17.9 | 9.2 | 27.2 |
| Loans | 10.9 | 7.9 | 24.5 | 41.9 | 4.1 | 0.7 | 6.5 | 7.2 |
| Banking capital | 3.9 | 1.4 | 1.9 | 11.8 | –3.2 | 1.2 | 3.8 | 4.9 |
| Other capital | 0.7 | 1.2 | 4.2 | 9.5 | 4.5 | –4.3 | –6.5 | –10.8 |
| Capital Account | 28.0 | 25.5 | 45.2 | 108.0 | 8.7 | 29.6 | 19.0 | 48.5 |
| Balance | 3.9% | 3.0% | 4.8% | 8.8% | 0.7% | 3.7% | ||
| Errors & Omissions | 0.6 | –0.5 | 1.0 | 1.2 | 1.1 | –1.4 | –1.4 | |
| Accretion to | 26.2 | 15.1 | 36.6 | 92.2 | –18.9 | 9.5 | 8.1 | 17.6 |
| Reserves | 3.6% | 1.8% | 3.9% | 7.5% | –1.5% | 1.3% | ||
Note: Percentage figures refer to the value of the item as a ratio to GDP
