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Thursday, March 15, 2012

Economic Survey 2011-12


Finance Minister Pranab Mukherjee tabled the Economic Survey 2011-12 in Parliament on Thursday March 15,2012,stating the Gross Domestic Product (GDP) is likely to grow 7.6 percent in FY'13
 
 

Highlights of Economic Survey 2011-12 

  • Rate of growth estimated to be 6.9% in FY 12
  • Outlook for growth and stability promising
  • Real GDP growth expected at 7.6% in FY 13
  • GDP pegged at 8.6% in FY 14
  • Agriculture grows at 2.5 % growth in FY 12
  • Services grow at 9.4 %, in FY 12, share in GDP at 59%
  • Industrial growth pegged at 4-5 % in FY 13
  • Industry expected to improve as economic recovery resumes
  • Inflation on WPI was high, but shows signs of moderation
  • Inflation moderation likely to spur investment
  • WPI food inflation dropped from 20.2% in February 2010 to 1.6% in January 2012
  • Calibrated steps initiated to contain inflation
  • India remains among the fastest growing economies of the world
  • India’s sovereign credit rating rose by 2.98 percent in 2007-12
  • Fiscal consolidation on track
  • Savings & Capital Formation expected to rise
  • Exports grew at 40.5% in H1
  • Imports grew by 30.4% in H1
  • Foreign trade performance key driver of growth
  • Forex reserves enhanced, cover nearly the entire external debt stock
  • Central spending on social services up at 18.5% in FY 12 Vs 13.4% FY 07
  • MNREGA coverage of 5.49 crore households in FY 11
  • Sustainable development and climate change high priority
  • Tenuous global economic environment turned sharply adverse in September, 2011
  • Euro-zone crisis responsible for international downturn
  • Slowdown of Indian economy due to global, domestic factors
  • Decline in overall investment rate cause for slow recovery
  • Gross capital formation in Q3 of FY 12 as a ratio of GDP at 30%, down from 32% in FY 11
  • Global economy remains fragile; efforts needed through G-20 for stability
  • Progressive deregulation of interest rates on savings accounts recommended
  • Deregulation of interest rates on savings accounts to help raise financial savings and improve transmission of monetary policy
  • Need deepening of domestic financial markets, especially corporate bond market
  • Efforts on to attract dedicated infrastructure funds
  • India’s foreign trade performance key driver of growth
  • Balance of Payments widens to USD 32.8 bn in H1 of FY 12 Vs USD 29.6 bn FY 11
  • Forex reserves up from USD 279 bn in March ’10 to US USD 305 bn in March’11
  • India now more closely integrated with the world economy
  • India’s share of trade to GDP of goods and services in world tripled in 1990-2010
  • India’s flows of capital as a share of GDP in word increased dramatically in last two decades
Inflation
  • Inflation to moderate further in FY 13
  • Renewed focus on supply side measures essential for price stability
  • Inflation expected to moderate at 6.5-7% by March end
  • Gap between WPI and CPI inflation narrows in FY 12
  • Milk, eggs/meat/fish, gram & edible oils major drivers of food inflation
  • Monetary policy measures taken to contain inflation
  • Substantial Monetary policy challenge to rein-in inflation
  • RBI addressed liquidity concerns
  • Monetary market remained orderly in FY 12 2011-12
  • Need to examine linkages between policy rate changes and inflation
  • Threat from asset price bubbles in real estate and stock markets
  • Scope to further sharpen monetary policy and use macro prudential to deal with above said threats
  • Unexpected shocks such as oil prices remain inflationary threats
  • High level of food stocks to help maintain overall price stability

Measures for price stability in food items
  • Need guidance for farmers on fertilizers, insecticide, alternate cropping patterns
  • Need strategy, regular imports of agriculture commodities in smaller quantities
  • Need to set up special markets for special crops
  • Improve Mandi governance
  • Need to promote interstate trade
  • Perishable food items should be taken out of ambit of the APMC Act
  • FDI in multi brand retain will fill infra gap during harvest period
  • Need to step up creation of modern stores facilities for food grains
Agriculture
  • FDI in multi-brand retail recommended
  • Higher levels of agricultural output augur well
  • Concerns over growth rate in agri sector falling short of target
  • Agriculture grows at 2.5% Vs target of 4% in five yr plan
  • Agriculture, allied activities account for 13.9 % of GDP in FY 12
  • Foodgrains stocks at 55.2 million tonnes
  • Production of foodgrains in FY 12 estimated at 250.42 million tones
  • Speedy improvement in yield through adequate investment in R&D needed
  • Agri infra priority area
  • Agri outlook for next fiscal bright
Industry
  • Industrial growth pegged at 4-5% in FY 12
  • Industrial growth less than recent past and far below potential
  • Need to boost business sentiments, encourage investment and identify bottlenecks
  • Industrial sector expected to rebound during next financial year
  • Industry expected to rebound with inflation easing, moderation in commodities prices in international market and revival of manufacturing performance
  • Long term average annual growth of industries comprising mining, manufacturing and electricity remain aligned with overall GDP growth rate
  • Employment in Industry increase from 16.2% in 1999-2000 to 21.9% in 2009-10 largely due tp construction sector
  • Contraction in production in the mining sector, particularly in coal and natural gas segments
  • Electricity sector witnessed improvement
  • Basic goods and non-durables goods grew at 6.1%
  • Moderation in growth in other segments of IIP
  • Negative growth observed in capital goods and intermediates segments
  • Gross Capital Formation in industry as percent to the overall GCF moderated to 48.3% in FY 11
  • Manufacturing GCF growth rate declined to 7% in FY 11 Vs 42% in FY 10
  • Moderation in rate of growth of credit in infrastructure and manufacturing sectors
  • Need to address land acquisition and infra issue on priority
Services Sector
  • Services sector proves saviour during global crisis
  • Services grow by 9.4% despite slowing GDP growth
  • Share of services in GDP at increased from 55.1% in FY 11 to 56.3% in FY 12
  • Financial & non-financial services, IT, Telecomm, Real Estate constituted 41.9 % of total FDI equity inflows during April 2000-December 2011
  • FDI inflows to the Services Sector slowed down FY 10 & FY 11, dipping to negative zone
  • FDI inflows in FY 12 recovered; increased by 36.8 % to USD 9.3 billion (April-Dec)
  • Slight moderation in services growth no cause of worry
  • Moderation due to the steep fall in growth of public administration and defence services reflecting fiscal consolidation
  • Growth in trade, hotels and restaurants robust at 11.2%
  • Retail-sector growth expected to be even more robust in FY 13
  • Worry areas include real estate ownership of dwellings and business services segment
  • Software service exports steady; face threat from Eurozone
Trade
  • India’s exports grew at 23.5% to reach USD 242.8 bn in April 2011 - Jan 2012
  • Exports decelerated in Oct-Nov due to global downturn; recovered in Dec-Jan
  • Key performers in export - petroleum and oil products, gems and jewellery, engineering, cotton fabrics, electronics, readymade garments, drugs
  • Imports up 29.4% during April - Jan 2011-12 at USD 391.5 bn
  • Key import areas -POL (petroleum, oil and lubricant), gold and silver
  • Trade deficit in April-Jan 2011-12 at USD148.7 bn Vs USD 105.9 billion in last fiscal
  • Diversification of export and import markets a success
  • UAE India’s largest trading partner, followed by China
  • India’s services exports bounce back after contraction in FY 10
  • India’s services exports grew 38.4 % to USD 132.9 bn in FY 11
  • Growth in export of services moderated in H1 FY 12 to 17.1%
  • Software exports may show some sluggishness
  • Trade challenges include global situation, systemic problems
  • Further diversification of India’s export basket needed
  • Facilitate trade by removing procedural delays, red tape
  • Infrastructural bottlenecks need to be removed
  • Total investment in SEZs till 31 Dec 2011 at Rs. 2,49,630.80 crore
  • Formal approvals granted for setting up of 583 SEZs of which 380 notified
  • Forex Reserves at USD 293 bn
  • External Debt Stock at USD 326 bn
  • Oil, Gold and Silver prices contribute to modest rise in current account deficit
  • Net capital flows at USD 41.1 billion (4.5% of GDP) in the H1 of FY 12
  • External commercial borrowing at USD 10.6 billion in H1 of FY 12
  • Portfolio investment shows large decrease in inflow to USD 1.3 bn in H1 of FY 12
  • Trade deficit more than 8 % of GDP and current account deficit more than 3 % sign of growing imbalance in BOP
  • High share of volatile FFI flows added external shock
Infrastructure
  • Performance of broad sectors and sub sectors in key infrastructure areas presents mixed picture
  • Achievements in certain infrastructure sector ‘remarkable’
  • Need to attract large scale investment into infrastructure
  • Public-Private Partnership successful model
  • PPPs expected to augment resource availability, improve efficiency
  • Investment requirement at USD 1 trillion during Twelfth Plan
  • 50% investment to come from private sector as against the 36% anticipated
  • Financing infrastructure a big challenge
  • Improvement in growth in power, petroleum refinery, cement, railway freight traffic, passenger handled
  • Coal, Natural Gas, Fertilizers, handling of Export Cargo at airports and number of cell phone connections show negative growth
  • Steel sector witnesses moderation in growth
  • Core and infrastructure sector still depends on public sector projects
  • Delays increase project risk and cost, and need to be minimized
  • Credit growth to infrastructure sector turned negative in FY 12
  • Incremental credit flow to the infra sector in April-December 2011 nearly 61% in same period year before
  • Reduction in credit flow in power and telecom sectors
  • Total FDI inflows into majors infrastructure sectors during April-December 2011 registered growth of 23.6%
  • Challenges on form plateauing of the domestic savings and macro availability of resources
  • Need for innovative schemes to attract large-scale investment into infrastructure
  • Strengthening domestic financial institutions and development of long-term bonds market critical
Rupee
  • Rupee falls by 12.4 % against USD
  • Rupee falls from 44.97 per USD in March 2011 to 51.34 per USD in January 2012
  • Rupee’s high volatility impairs investor confidence
  • Aggressive stand to check Rupee volatility recommended

Financial Markets
  • Volatility in global financial markets likely to tighten availability and cost of foreign funding
  • Government measures mitigate liquidity stress
  • Indian banks robust amidst Eurozone crisis
  • Financial infrastructure continues to function without any major disruption
  • Indian financial markets, especially currency and equity, performed under pressure in FY 12
  • Global market turmoil caused risk aversion and moderation in capital inflows
  • Countervailing steps helped mitigate strains
  • Global situation, rising trade imbalance, pace of reform initiatives to boost capital flows
  • Domestic growth concerns likely to influence financial markets movements
  • Concerns over Greece’s sovereign debt problem spreading to India
  • Banking business may become more complex and riskier in future with greater global integration
  • Risk and liquidity management, skill enhancement necessary
  • Need to maintain sustainable levels of external debt
  • Need innovative steps to bring corporate bond market at the centrestage
  • Infrastructure financing and financing of unorganized micro/small business sector needed
    Banking and Micro Finance
    • Public sector banks show 19 % growth in priority sector lending
    • Credit Disbursement to agri sector exceeded target by 19 %
    • Credit Disbursement helped over 12.7 mn new farmers
    • 98 % public sector bank branches fully computerised
    • Self Help Group- bank linkage programme major success
    • Capital in banks essential for balance sheet expansion
    • Rs 12,000 provided in FY 12 for capital infusion in public sector banks
    • Growth in bank credit extended by Scheduled Commercial Banks grew at 17.1%
    • Flow of agricultural credit impressive
    • Infrastructure Debt Funds to facilitate flow of funds into infrastructure projects
    • Resource mobilization through primary market shows sharp decline in FY 11
    Environment and Climate Change
    • Lower carbon sustainable growth to be central element of 12th plan
    • India’s per capita CO2 emissions much lower than those of developed countries even if historical emissions are excluded
    • Need for more sensitivity from developed countries to carbon emissions
    • Economic pricing of energy, new technologies to be the key
    • India has taken voluntary actions to pursue sustainable development strategy
    • Warming planet may cause adverse effects, extreme weather events
    • India has stepped up protection of its natural environment, forests
    • Five main challenges include climate change, food security, water security, energy security and managing urbanization
    • Broad-based economic and social development answer for greater sustainability
    Education and Employment
    • Reform process in education continued IN FY 12
    • Aakash, low cost computing device launched
    • Sarva Shiksha Abhiyan norms revised to correspond with the provisions of the RTE Act
    • National Council for Teacher Education notified as the academic authority for teacher qualifications
    • Number of out-of-school children down from 134.6 lakh in 2005 to 81.5 lakh in 2009
    • Need to scale up the successful centres of innovations, create higher technical institutions
    • Labour Bureau Survey indicates upward trend in employment since July 2009 maintained
    • Employment in organized sector increased by 1.9 % in 2010
    • Share of women in organized-sector employment at 20.4% in 2010 March end
    • MGNREGA: Coverage increases to 5.49 crore households in 2010-11
    • Government sets up committee for developing index for fixing MGNREGA wage rates
     Power Generation
    The power sector has achieved 76 percent of the generation target for 2011-12 in the first nine months of the fiscal.Electricity generation during 2011-12 was targetted to increase by 5.4 percent to 855 billion units, and in the first nine months 76 percent of the target has been achieved.During the April-December (2011-12) period, 653.446 billion units (BUs) of electricity were generated against 598.244 BUs in the same period last financial year.


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