The Finance Minister presented the Economic Survey 2010-11 before the Parliament. It is a report card of India’s economic performance which gives the current and expected direction of the Government Policies. The key highlights of the same are given below:

I.  State of the Economy and Prospects

•        Recovering from the slowdown caused by global financial crisis, the GDP growth rate in 2010-11 is expected at 8.6 percent as compared to 8 percent in 2009-10 on account of positive growth in agriculture sector at 5.4 percent coupled with the industrial and the service sectors growing at 8.6 and 9.6 percent respectively.

•        GDP growth is expected to revert to pre-crisis levels at around 9 percent (+/- 0.25 percent) in 2010-11 on the basis of positive momentum in savings and investments rate.

•        The services sector has played a dominant role in the Indian economy with a 57.3 percent share in the GDP.

•        Savings and investments rate for 2009-10 is estimated at 33.7 and 36.5 percent respectively with the savings – investments gap estimated at 2.8 percent

•        Foreign exchange reserves of 297.3 billion at the end of December 2010.

•        However, the Wholesale Price Index is estimated to remain at an elevated level of about 9.4 percent for April to December 2010 primarily on account of high food inflation at 18 percent.

II State Micro-Foundations of Macroeconomic Developments

•        The government has set up an inter-ministerial group under the chairmanship of Ministry of Finance to “review trends in overall inflation, with particular reference to primary food articles”.

•        Specifically regarding food inflation and thereby to curtail margin between farm gate and retail prices, the Economic Survey has suggested foreign direct investment (FDI) in multi-product retail into India. A regulatory structure, including measures such as anti¬trust laws, could be introduced within which the foreign companies could function. It is also suggested that the FDI could initially be introduced in few major cities so as to prevent them from controlling the market.

•        The Economic Survey suggested that considering the success of teaser / terraced loans, these products should be continued and be made available to the sub-prime borrowers. However, such loans should be advanced discerningly considering the categories of borrowers and ability to repay in future years.

•        To attract more FDI, it is highlighted to bring in new reforms to improve the bureaucratic efficiency which is currently a stumbling block in the path of receiving stable FDI inflow.

•        Further, the government has also put forth new initiatives, few illustrations mentioned below:

–        Strategies to release food grains in small batches to avoid monopolies.

–        The Food Security Bill to consider special relief such as issue of smart cards at subsidized rates to the targeted poor households. These smart cards can be used to purchase at PDS stores at market price. This would radically alter the present public distribution system and plug the loopholes as well as reduce corruption.

–        Developing Tourism industry by improving in visa and immigration services along with creating more conducive infrastructural facilities.

–        To develop India as education hub and target higher gross enrolment ratio (GER) from the current levels of 13.5 percent to a target of 30 percent within a decade from now.

III Fiscal Development and Public Finance

•        The gross Tax-GDP ratio is expected to marginally decline to 9.5 percent in 2010-11 (direct tax being 5.4 percent and indirect tax being 4.1 percent) from 9.6 in 2009-10 (direct tax being 5.7 percent and indirect tax being 3.9 percent)

•        For 2010-11, Fiscal, Revenue and Primary deficits are placed at 4.8 percent, 3.5 percent and 1.7 percent of GDP respectively. Government had an estimated INR 3021 billion as Plan expenditure, equivalent to 4.6 percent of the GDP

•        Growth in the gross tax revenue in the nine months of April to December 2010 was 26.8 percent (year-on-year).

•        The non-tax revenue grew by about 136.4percent in the first nine months of the current fiscal (primarily out of the 3G and BWA bonanza). Revenue receipts grew by over 50percent during the same period

•        Indirect Taxes is estimated to increase by 19.1 percent with revenue from Customs Duties increasing by 36.5 percent, Excise Duties increasing by 26.1 percent and Service Tax by 16.3 percent

•        Partial rollback of the stimulus package and the economic recovery gaining momentum has resulted in an overall increase of indirect taxes

IV Prices and Monetary Management

•        During the year, in September 2010, a new Wholesale Price Index (WPI) series was released.

•        The annual average inflation rate-base on WPI was 18 percent for primary articles, 12.3 percent for fuel and power and 5.3 percent for manufactured products. The annual average WPI for all commodities was 9.4 percent.

•        Key challenges for the future would be to make inflation rates come down to comfortable levels and make the cost and availability of credit helpful to the growth of the economy

•        During 2010-11 the RBI raised the policy rates six times whereby the repo rate under the liquidity adjustment facility (LAF) has cumulatively been increased by 175 basis points (bps) to stand at 6.5 percent and the reverse repo rate by 225 bps to 5.5 percent.

•        The current monetary policy stance is to contain inflation, maintain a consistent interest rate regime and to actively manage liquidity.

V Financial Intermediation and Markets

•        During the financial year 2010-11, the growth percentages in scheduled commercial banks (SCBs) for bank credit, aggregate deposits and investments were 12.2, 6.8 and 4.2 respectively.

•        Concerned about the non-regulated growth in the micro-finance sector the government has drafted a Micro-Financial Sector (Development and Regulation) Bill 2010.

•        The sluggish growth in deposits slowed the growth rate of banks during 2009-10 to 15 percent. Non-performing assets of banks rose (2.39 percent of gross advances) during year 2009-10 while their capital adequacy ratio (CRAR) remained rather healthy at 13.6 percent.

•        The total number of NBFCs registered with the RBI was 12630 in end of June 2010. The ratio of deposits of reporting NBFCs to aggregate deposits of scheduled commercial banks dropped to 0.36 percent in end-March 2010.

•        The Indian capital market remained strong during the year making gains for eight quarters in a row, the longest run in at least 20 years. The net gain during 2010 for the capital market was 18 percent. The mean size of IPOs increased by 30.6 percent to INR 82.7 billion as compared to the last year.

•        Insurance penetration (ratio of premium underwritten in a given year to the GDP) increased to 5.39 in 2009. The major initiatives undertaken by IRDA include amongst others amendments to the Insurance Act, IRDA Act and General Insurance Business (Nationalisation) Act; formulation of Micro Insurance regulation; capping of ULIP charges; and IPO guidelines.

•        Key challenges include the answering the tricky question of licensing of new banks, carrying out of pension reforms and financial inclusion.

VI Balance of Payments

•        Even though the economy of several advanced countries continues to face uncertainty with large fiscal deficit, high public debt and unemployment levels, India has been more fortunate in combating the crisis as its growth was largely domestic economy driven.

•        The exports in April-December 2010 went up by 29.5 percent while the imports during the same period registered a growth rate of 19 percent. The trade deficit increased to USD 82 billion in the same period

•        Net Capital Flows at USD 36.7 billion in first half of 2010-11 were

higher as compared to USD 23 billion in the first half of 2009-10.

•        India with a reserve of USD 297.3 billion at the end of December 2010 is now the 4th largest foreign exchange reserve holder in the world.

•        The monthly average exchange rate of the rupee has been in the range of INR 44-47 per USD between April – December 2010.

•        Net FDI inflow was marginally lower at USD 18.8 billion in 2009- 10 as compared with USD 19.8 billion in 2008-09.

•        Portfolio investment witnessed net inflows of 32.4 billion including FII net inflow of 29 billion in 2009-10.

•        The Government needs to combat the key challenges namely the continuing sovereign debt risk in peripheral euro-zone countries, fragile global recovery and unstable FDI inflows.

VII International Trade

•        The global economy estimated to go by 5percent as per World Economic Outlook (WEO) in 2010.

•        World Trade reached USD 7.03 trillion in first half of 2010 with a growth rate of 24percent. Growth in world trade volume is expected to moderate in 2011 and 2012 to 7.1 percent and 6.8 percent respectively.

•        India’s share in world merchandise export has reached 1.4 percent in January – June 2010 as compared to 1.3 percent in 2009.

•        The key challenges in medium to long term include diversification of India’s export in tune with world demand, increase in export competitiveness amongst South East Asian countries, allowing at concessional duties under Free Trade Agreements etc.

VIII Agriculture and Food Management

•        As per 2010-11 advance estimates, agriculture and allied sector accounted for 14.2 percent of the GDP (agriculture 12.3 percent, forestry 1.5 percent and fisheries 0.8 percent) as against 14.6 percent in 2009-10.

•        To achieve the plan target growth of agriculture at 4percent during the 2007-2012 periods, agriculture sector needs to grow at 8.5 percent during 2011-12. Need to significantly step up investment in agriculture both by private and public sectors to ensure sustained growth

•        The food grain production during 2010-11 is estimated at 232.07 billion tonnes up from 218.1 billion tonnes in 2009-10. With a relatively good monsoon the agriculture-sector is expected to grow at 5.4 percent during 2010-11.

•        The Forwards Markets Commission, the regulator for commodity futures trading under the provisions of the Forward Contract (Regulation) Act, 1952, continued its efforts to strengthen and broad base the market during 2010. Four National Commodity Spot Exchanges were set up trading in more than 30 commodities having delivery locations spread over 15 states.

•        The Centrally sponsored National Mission on Micro Irrigation (NMMI) was launched in June 2010 for enhancing water-use efficiency by adopting drip and sprinkler irrigation systems in all States and UTs for both agricultural and horticultural crops.

•        The focus of agriculture should be raising farm productivity with adequate focus on rainfed areas, diversification of agriculture from just crop farming to livestock, fisheries and poultry and horticulture while addressing environmental concerns

IX Industry

•        Growth in the industrial sector was buoyant during April-September 2010. The manufacturing sector grew at a robust rate of 12.6 percent and 9.9 percent in the first two quarters of 2010-11 respectively. Thereafter, industrial output growth has begun to moderate in line with global trends.

•        In April-December 2010, cumulative growth rate of industrial output was 8.6 percent.

•        During April-December 2010, the cumulative growth rate of the manufacturing sector, the key driver of the industrial output, was 9.1 percent.

•        The consumption, imports and exports of finished steel recorded growth rates of 9.8 percent, 11.1 percent and 13.8 percent respectively.

•        The revenue aggregate of the Information Technology (IT)-business process outsourcing (BPO) industry has grown by 5.4 percent to reach USD 73.1 billion in 2009-10. For the same period, revenue from IT service exports grew to USD 27.3 billion, revenue from Information Technology Enabled Services (ITeS)-BPO exports reached USD 12.4 billion and the revenue from the domestic market (IT services and ITeS-BPO) reached to USD 14 billion.

•        The production of electronics is estimated to grow by 13 percent to reach INR 1,099 billion in 2009-10. The cumulative export figure in electronics during 2010-11 (April to July) is estimated at USD 1.36 billion.

•        In Tourism Sector, the Foreign Tourist Arrivals (FTAs) in the first eight months of 2010-11 have registered significant growth of 9.4 percent as against growth of about 6 percent for the world. Foreign exchange earnings from tourism in 2010-11 (April-November) increased by 16.8 percent in rupee terms.

•        On a year-on-year basis, credit growth to industry sharply accelerated to 27 percent in November 2010.

•        There was, as expected, a decline in investment intentions in 2009, but investment intentions in 2010 (January-November) indicate revival of business sentiments and an improvement in entrepreneurs’ perception. Metals, machinery, cement, chemicals and the auto sector continue to dominate as the preferred industries

X Services sector

•        Services sector is a fast-growing, employment–oriented, attracting FDI with vast-export potential. The outlook for the services sector which had dimmed due to the fallout of the sub-prime crisis in the US and the global financial crisis has once again brightened.

•        India with a services sector share of 52 percent in national GDP in 2009 and 55.2 percent in 2009-10 compares well even with the developed countries in the top 12 countries with the highest overall GDP. In 2009-10, services growth was 10.1 percent and in 2010-11 (based on estimates) it was 9.6 percent.

•        Among various services in this sector, financing, insurance, real estate, and business services; and trade, hotels and restaurants are the largest groups accounting for 16.7 percent and 16.3 percent respectively of the national GDP in 2009-10. The community, social, and personal services category accounts for a 14.4 percent share in GDP, while transport, storage, and communication accounts for a 7.8 percent share in GDP. Construction, which is a borderline services inclusion, has a share of 8.2 percent in GDP.

•        Key challenges in this sector are to retain India’s competitiveness in those sectors where it has already made a mark such as IT & ITeS and Telecommunications, making inroads into traditional areas such as tourism and shipping and making forays into globally traded services such as financial services, health care, education, accountancy, and other business services.

XI Energy, Infrastructure and Communications

•        In the Eleventh Five Year Plan has the estimates of total investment in infrastructure were revised to INR 20,542 billion which is likely to enhance by 2.47 percent of the GDP as compared to the Tenth Plan.

•        The performance of core industries and infrastructure services has been mixed, with sectors like telecommunications, crude oil production and civil aviation sectors doing remarkably well whereas sectors like power, road and railway performing at less than target levels.

•        To accelerate the development of power sector , reforms in 3 directions are proposed viz. Strengthening the regulation, improving distribution and opening bulk supply to completion and revising tariff to more economic levels

•        During 2010-11, production of crude oil is estimated at 37.96 million metric tonne (MMT), i.e., 12.67 percent higher than preceding year. Freight loading on Indian railway increased by 3.31 percent to 593.43 MT. The achievement under various phases of NHDP was upto 1,007 km in April-November 2010.

•        The telecommunications sector has done exceedingly well as the tele density has increased from 20.74 percent in 2004 to 143.95 percent in 2010 in urban areas. Similarly, the aviation sector witnessed strong recovery registering a growth rate of 19 and 30 percent in domestic passenger and cargo respectively.

•        To accelerate the pace of infrastructure development, an enhanced investment amounting to INR 40,992 billion will be needed in the next twelfth plan (2012-17)

•        The key challenges apart from financing infrastructure projects also includes unavailability of skilled labourers, land acquisition delays, clearance hurdles etc.

XII Human Development, Equity and Environment

•        As per the Human Development Report (HDR) 2010, published by  United Nations Development Programme (UNDP), the human development index (HDI) for India was 0.519 in 2010 placing it at an overall rank of 119 out of 169 countries in comparison to a rank of 134 out of 182 countries as reported in HDR 2009.

•        The Central Government outlay on social services and rural development has consistently increased from 13.75 percent in 2005- 06 to 19.27 percent in 2010-11 in areas such as Rural Development, Education, Labour and Employment etc.

•        A major financial inclusion initiative “Swabhimaan” was launched on 10 February 2011 aimed at providing branchless banking through the use of technology to the socially excluded like SCs, STs, OBCs and disabled.

•        Phase II of Unique Identification Authority of India (UIDAI) – “Aadhaar’ programme was commenced in July 2010 for enrolling 100 million residents through multiple registers and for setting up of other infrastructural requirements. The scheme was introduced in 2009 for facilitating financial inclusion and ensuring better governance and improved service delivery of the Government programmes.

•        The Government recognizing the importance of factoring ecological concerns into the development process has taken a number of initiatives including the notification of Wetlands (Conservation and Management) Rules 2010 for prevention of further degradation of wetlands.

•        The Government of India and World Bank signed a loan agreement for the implementation of an Integrated Coastal Zone Management Project, to be implemented at a cost of INR 11.56 billion with World Bank’s contribution at 77.7 percent, Govt of India’s at 15.4 percent and the States at 6.9 percent.

•        The Government’s focus would be on introduction of reforms in the education system and health sector. There is also an increasing realization of the importance of climate related issues in a more inclusive growth strategy.

•        Special focus given by Government of India for the social and economic upliftment of the north – east region through improving financial inclusion.

•        A better convergence of the different government schemes to address the issues of unemployment and poverty alleviation could avoid duplication and leakages

•        A call for reforms in the university and higher education and correcting the demand supply mismatch in the job market has been made in the report. The gap in resources for higher education may be met on the basis of public private partnership without diluting the regulatory oversight of the Government.

Summing Up

Recovering from the global slowdown, the Indian Economy is geared up to achieve the GDP growth rate of 9 percent for 2011-12 on the basis of positive momentum in savings, investment rate and increasing investment in infrastructure. However, there is a soaring task in front of the Government to overcome from the crisis of elevated inflation rate on account of higher food, crude oil prices and poor implementation of the policy measures. The Finance Minister would thus need to strike a balancing act in insulating the aam aadmi from the higher inflation and at the same time keep the momentum going for the successful Indian growth story ahead.

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September 2021