The economy has decisively moved to a higher growth trajectory during the five years to 2007-08. In terms of GDP, the growth rate has averaged 8.7 per cent per annum during these five years. This indicates stability and sustainability. The growth is reflected in a near doubling of the pace at which the average income of our people is growing. If the rate of growth of per capita GDPmp continues at the five year average of 7.2 per cent per year, average income would now double in a decade instead of a generation or more, earlier. The acceleration in improvement of the condition of the common man is also reflected in a near doubling of the rate of growth of per capita private consumption to 5.1 per cent per annum (from 2.6 per cent in the previous 11 years). With better targeting of government services and an increase in their quality we can ensure that the overall welfare of the common man in terms of both private consumption and supply of public goods continues to increase rapidly.
The higher economic growth trajectory and the projected growth of 8.7 per cent in 2007-08 is based on a quantum jump in savings and investment rates. The rate of investment (GCF) was 35.9 per cent of GDP in 2006-07 and is projected to increase in 2007-08. This is an unprecedented level of investment and shows the firm foundations on which the growth acceleration has been built. The saving rate has similarly scaled new highs reaching 34.8 per cent of GDP in 2006-07.
Given this solid foundation of domestic investment and saving, we are confident of meeting the Eleventh Plan (2007-08 to 2011-12) target of 9 per cent average growth. We will be able to mobilise the resources for meeting the growth target of 9 per cent, as set for the Eleventh Five Year Plan. Macro-economic fundamentals continue to inspire confidence and the investment climate is full of optimism. This is reflected, for instance, in the significant surge in capital inflows into the economy in the recent period, even when the global economy is showing distinct signs of slowing down. Buoyant growth of Government revenues has made it possible to maintain fiscal consolidation as mandated under the FRBMA. At the same time, we have the means to bridge and address the chronic gaps and weaknesses in our physical and social infrastructure.
Inflation, which had risen during the second half of 2006-07, has been brought under control. The year on year rate of inflation declined to less than 4% in August 2007 and had remained below 4 per cent for 23 consecutive weeks since then. The price inflation in primary articles has similarly been brought down to 3.8 per cent in January 2008. Given the high level of food, oil and other commodity prices in international markets, the risks to inflation remain. Thus keeping inflation under control in an uncertain global environment will be one of the major challenges in 2008-09. There are, also downside risks to growth arising from the slowdown and possible recession in the global economy.
There are several challenges to inclusive growth, namely agriculture, infrastructure, education and skill development. The last few years have seen a resurgence of the manufacturing sector and a continued broad based growth of the services sector. The agriculture sector/ dependent as it is on the monsoon, continued to fluctuate, though the five year period ending 2007-08 had the second lowest year to year variation since the five years ending 1956-57. We need to accelerate the pace of growth in agriculture on a sustained basis.
Despite efforts to accelerate the pace of Infrastructure development, the demand for infrastructure services has grown even faster than the supply. It is imperative to augment and upgrade infrastructure both physical and social. This requires mobilisation of unprecedented amount of capital with macroeconomic stability, which can only happen if both the public and private sectors have the incentive and motivation to perform at their best. We have to harness our demographic potential and promote inclusive growth by providing the basic education and skills needed in the job market.
I am optimistic about growth and containment of inflation in the coming year. It will be my priority to continue to provide a conducive investment climate and manage the macro economy to facilitate non-inflationary growth. We have to ensure that the benefits of this growth percolate to the most marginal and vulnerable segments of the society.
If you wish me to sum up in one phrase the outlook for 2008-09, I would say "optimism, but with caution as the watchword." There are a number of things going in favour of India. We need to capitalize on these opportunities while at the same time responding to the evolving situation in the global economy in a manner that our growth story is not affected.”
Above is the text of the statement made to the media by Finance Minister, Shri P. Chidambaram after placing Economic Survey in the Parliament House on 28th February 2008
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