The Indian economy weathered the financial turbulence well

  • 6.7 % growth in 2008/09 – amongst the highest growth rates in the world.
  • well calibrated adjustments in the monetary and fiscal policies

Projected growth 6.5 % in 2009/10  against 6.7 % in 2008/09

  • Agriculture :  -2.0 %  (1.6% in 2008/09)
  • Industry (including construction) : 8.2% (3.9% in 2008/09)
  • Services: 8.2 % each. (9.7% in 2008/09)

Unlikely that growth will be lower than 6.25 % but may reach 6.75 %.

Impact of international conditions

  • Recession, higher household savings and demand contraction in developed economies- adverse for exports growth.
  • Encouraging signs of revival of capital flows.
  • A further negative shock to the global financial system and global inflation could threaten growth in Indian economy.

Investment rate unchanged from 2008/09

  • Projected investment rate in 2009/10: 36.5%. Will pick up with improvement in domestic conditions.
  • Projected savings rate 34.5% in 2009/10 (33.9% in 2008/09)

22.7 % deficiency in the SW monsoon will lower agricultural output

  • Large acreage losses under kharif foodgrain, mainly rice. Rabi prospects good
  • Projected food grain production:223 million tonnes in 2009/10 (234 mt in 2008/09)

Current Account Deficit : – 2.0 % of GDP in 2009/10 ( – 2.6 % in 2008/09)

  • Exports projected at $188.9 billion in 2009/10
  • Imports projected at $306 billion in 2009/10
  • Projected merchandise trade deficit for 2009/10:$ 117 billion or 9.4 % of GDP.
  • Projected net invisibles: $92.2 billion. Service exports & remittances have revived.

Capital inflows of $57.3 billion in 2009/10 ($9.1 billion in 2008/09)

  • Net accretion to reserves : $31.6 billion ( – $20.1 billion in 2008/09)

Surge in food inflation

  • 13% annualized increase in overall WPI index and 33% for primary food index in first half of 2009/10. Sharper rise in CPI indices.
  • Global inflationary pressures will be high – oil and commodity prices rising
  • Inflation in March 2010 expected around 6%

Improvement in financial conditions – global and domestic

  • Recovery in international loan and equity markets – lower LIBOR/CDS spreads
  • Bank credit sluggish till September 2009 but corporate sector raised large amounts from the domestic capital market through debt and equity issuance.
  • Calibration of monetary measures will depend on growth and inflationary pressures.

Serious fiscal strain

  • Projected consolidated fiscal deficit: 10.09% in 2009/10 (8.6% in 2008/09). Higher revenue and primary deficit to persist.
  • Debt of centre and states as a ratio of GDP is projected to increase to over 77% in 2009/10
  • Need to return to fiscal consolidation

Some Policy Options – focus on agriculture and power

  • Short Term – managing inflation, specially food price inflation

§   Protect and enhance rabi crop.

§   Focus on strengthening PDS distribution system

  • Medium Term – Farm economy and power

§   Improve farm productivity – use technology optimally

§   Imperative need to achieve targets and  have an active plan over a

time horizon of 15 years for capacity creation in electricity

§   Actively explore fuel sources like natural gas and nuclear energy

Table A: Growth – Past Performance and Projections for 2009/10

Annual Rates 2004/05 2005/06 2006/07 2007/08

QE

2008/09

Rev

2009/10

Projected

Percentage change over previous year
1. Agriculture & allied activities 0.0 5.8 4.0 4.9 1.6 –2.0
2. Mining & Quarrying 8.2 4.9 8.8 3.3 3.6 10.0
3. Manufacturing 8.7 9.1 11.8 8.2 2.4 7.7
4. Elect., Gas & Water Supply 7.9 5.1 5.3 5.3 3.4 7.4
5. Construction 16.1 16.2 11.8 10.1 7.2 8.8
6. Trade, Hotels, Transport, Storage & Communication 10.7 12.1 12.8 12.4 9.0 8.4
7. Finance, insurance, real estate & business services 8.7 11.4 13.8 11.7 7.8 8.0
8. Community & personal services 6.8 7.1 5.7 6.8 13.1 8.0
9. Gross Domestic Product (factor cost & constant prices) 7.5 9.5 9.7 9.0 6.7 6.5
Industry (2 + 3 + 4 + 5) 10.3 10.2 11.0 8.1 3.9 8.2
Services ( 6 +  7 +  8  ) 9.1 10.6 11.2 10.9 9.7 8.2
Non-agriculture (9 – 1) 9.5 10.4 11.2 9.9 7.8 8.2
GDP (factor cost, const. prices) per capita 5.8 7.8 8.2 7.5 5.2 5.0
Some Magnitudes
GDP factor cost – 1999/00 prices (Rs trillion)

(Rs lakh crore i.e. Rs trillion)

26.0 28.4 31.2 34.0 36.1 38.8
GDP market & current prices  (Rs trillion) 31.5 35.9 41.3 47.2 53.2 58.6
GDP market & current prices   ( US$ Billion) 701 810 913 1,175 1,166 1246
Population (million) 1,089 1,106 1,122 1,138 1,154 1,170
GDP current & market prices per capita (Rs) 28,894 32,430 36,802 41,506 46,107 50056
GDP current & market prices per capita (US$) 643 732 813 1,033 1,010 1065

Table B.  Balance of Payments

US$ billion 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
Merchandise Exports 85.2 105.2 128.9 166.2 175.2 188.9
Merchandise Imports 118.9 157.1 190.7 257.8 294.6 306
Merchandise Trade Balance -33.7 -51.9 -61.8 -91.6 -119.4 -117.1
-4.80% -6.40% -6.80% -7.80% -10.20% -9.40%
Net Invisibles 31.2 42 52.2 74.6 89.6 92.2
o/w Software & BPO 14.7 23.8 27.7 37.3 45.2 47.3
Private Remittances 20.5 24.5 29.8 41.7 44 50.4
Investment Income -4.1 -4.1 -6.8 -4.3 -4 -6.1
Current Account Balance -2.5 -9.9 -9.6 -17.03 -29.8 -25
-0.40% -1.20% -1.00% -1.40% -2.60% -2.00%
Foreign Investment 13 15.5 14.8 45 3.5 46.9
o/w FDI (net) 3.7 3 7.7 15.4 17.5 22.8
Inbound FDI 6 8.9 22.7 34.2 35 36.9
Outbound FDI 2.3 5.9 15 18.8 17.5 14.1
Portfolio Capital 9.3 12.5 7.1 29.6 -14 24.1
Loans 10.9 7.9 24.5 41.9 5 8.7
Banking Capital 3.9 1.4 1.9 11.8 -3.4 2.9
Other capital 0 1.2 4.2 9.5 4.2 -1.1
Capital Account Balance 28 25.5 45.2 108 9.1 57.3
4.00% 3.10% 5.00% 9.20% 0.80% 4.60%
Error& Omissions 0.6 -0.5 1 1.2 0.6 -0.8
Accretion & Reserves 26.2 15.1 36.6 92.2 -20.1 31.6
3.70% 1.90% 4.00% 7.80% -1.70% 2.50%
Memo
GDP mp Rs crores 3149407 3586743 4129174 5321753 5321753 5856569
US$ billion 701 810 913 1166 1166 1246
Forex rate (Rs per US$) 44.93 44.27 45.25 45.63 4563 47

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