Indian Economic Survey 2008-09
The Economic Survey 2008-09 presented to Parliament on July 02, 2009 by the Finance Minister Shri Pranab Mukherjee says, the speed at which the Indian economy returns to the high growth path in the short term depends on the revival of the economy, particularly the US economy and the Government’s capacity to push some critical policy reforms in the coming months. It says, if the US economy bottoms out by September 2009 there would be good possibility for the Indian economy repeating its 2008-09 performance i.e. around 7.0 +/- 0.75 per cent in the fiscal 2009-10 (assuming a normal monsoon). However, in the event of a more prolonged external economic downturn, the revival of the global economy/US economy being delayed until 2010, the growth may moderate to the lower end of the range.
• Economic growth decelerates to 6.7 per cent in 2008-09 compared to 9 per cent in 2007-08 and 9.7 per cent in 2006-07.
• Per capita growth at 4.6 per cent.
• Deceleration in growth spread across all sectors except mining and quarrying; agriculture growth falls from 4.9 per cent in 2007-08 to 1.6 per cent 2008-09.
• Manufacturing grows at 2.4 per cent, slowdown attributed to fall in exports and a decline in domestic demand.
• Global financial meltdown and economic recession in developed economics major factors in India’s economic slowdown.
• Investment remains relatively buoyant, ratio of fixed investment to GDP increased to 32.2 per cent in 2008-09 compared to 31.6 per cent in 2007-08.
• Fiscal deficit to GDP ratio stands at 6.2 per cent.
• Credit growth declines in the later part of 2008-09 reflecting slowdown of the economy in general and the industrial sector in particular.
• Increased plan expenditure, reduction in indirect taxes, sector specific measures for textile, housing, infrastructure through stimulus packages provides support to the real economy.
• Merchandise export grows at a modest 3.6 per cent in US Dollar terms while overall import growth pegged at 14.4 per cent.
• A large domestic market, resilient banking system and a policy of gradual liberalisation of capital account to help early mitigation of the adverse effect of global financial crisis and recession.
• Sharp dip in the growth of private consumption a major concern at this stage.
• Medium to long-term capital flows likely to be lower as long as the de-leveraging process continues in the US economy.
• Revisiting the agenda of pending economic reforms imperative to renew the growth momentum.
The Economic Survey 2008-09 says the recovery is likely to be assisted by the likely developments in the external sectors. The declining trend in trade deficit suggests that with reasonable invisible account surplus, which has been an attribute of Indian economy for the last several years economy may end up with a current account surplus of 0.3 to 2.8 per cent of GDP in 2009-10.
The Survey says, the prospects of Indian economy are somewhat different from most other countries. A large domestic market, resilient banking system and a policy of gradual liberalisation of capital account have been key factors. The Survey says a major concern at this stage though not entirely unexpected is a sharp dip in the growth of private consumption. Four factors seem to have contributed to this slowdown. First, it could be due to the wealth effect, resulting from decline in the equity/property prices. Secondly, the uncertainty in the labour market and some decline in employment. Thirdly, cutbacks in consumer credit by private banks, NBFCs and other lenders. Fourthly, during slowdown a dominance of precautionary motive may induce consumer to either defer their spending decisions or shift to unbranded alternatives.
The Survey goes on to note that there are early signs of recovery in the global economy manifested in rising stock prices and increasing price of commodities. It is however, debatable whether rising prices are an indication of green shoots of recovery or a result of position taken by financial investors seeking to benefit from global recovery expectations. It says, though the financial crisis and the transmission of its impact on the real economy is now better understood and global financial conditions have shown improvement over the recent months, uncertainty related to the revival of the global economy remain. That makes it difficult to forecast the short-to-medium term growth prospects of the Indian economy.
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