Strong rebound in the second half of FY10 drives Indian growth rate upwards: Review of the Economy-2009-10

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 2011/12 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.


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