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Indian Budget 2009-10- Full Text- July 06, 2009

Overview of the Economy

10. Madam Speaker, at the time of the presentation of the Interim Budget, I had given a detailed analysis of the economic situation. Without repeating myself, I would like to highlight that the development course charted by the UPA Government in the last five years has been possible due to a step up in the growth rate of the economy and improved revenue buoyancy. The principal growth driver in this period has been private investment, which has been predominantly funded by domestic resources. During the year 2008-09, there has been a dip in the growth rate of GDP from an average of over 9 per cent in the previous three fiscal years to 6.7 per cent. It has affected the pace of job creation in certain sectors of the economy and the investment sentiments of the business community. It has also resulted in considerably lower revenue growth for the government. Another feature of the year 2008-09 was a sharp rise in the wholesale price index to nearly 13% in August 2008 and an equally sharp fall close to 0% in March 2009. While a detailed analysis of the developments has been presented in the Economic Survey-2008-09, tabled in both houses of Parliament last Thursday, I draw your attention to a few aspects.

11. The structure of India ís economy has changed rapidly in the last ten years. External trade and external capital flows are an important part of the economy and so is the contribution of the services sector to the GDP at well over 50 per cent. The share of merchandise trade (exports plus imports) as a proportion of GDP has more than doubled over the past decade to 38.9 per cent in 2008-09. Similarly, trade in goods and services taken together has also doubled to 47 per cent during this period. Gross capital flows rose to a peak of over 9 per cent of GDP in 2007-08 before falling in the wake of the global financial crisis. The significant increase in the inflow of foreign capital is important, not so much for bridging the domestic savings-investment gap, but for facilitating the intermediation of financial resources to meet the growing needs of the economy.

12. This growing integration of the Indian economy with the rest of the world has brought new opportunities and also new challenges. It has made the task of sustaining high growth more complex. Over the past month, we have critically evaluated Governmentís efforts at both short term economic recovery as well as medium term economic growth. The economic recovery and growth is a cooperative effort of the Central and State Governments. That is why, for the first time, I held a meeting with Finance Ministers of States as part of the preparations for this Budget. I intend to make this an annual feature.

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