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Indian Economic Survey 2008-09

The Survey says to counter the negative fall out of the global slowdown on the Indian economy, the Government responded by providing substantial fiscal expansion in the form of tax relief to boost demand and increased expenditure on public assets. The net result was an increase in fiscal deficit from 2.7 per cent in 2007-08 to 6.2 per cent of GDP in 2008-09. The difference between the actuals of 2007-08 and 2008-09 constituted the total fiscal stimulus not withstanding that some expenditure was on account of implementation of the Sixth Pay Commission Award and the Agriculture Debt Relief Scheme announced in 2008-09 Budget.

It says despite the slowdown in growth, investment remained relatively buoyant growing at a rate higher than at the rate of the GDP. The ratio of the fixed investment to GDP consequently increased to 32.2 per cent in 2008-09 from 31.6 per cent in 2007-08. This reflects the resilience of Indian enterprise, in the face of massive increase in global uncertainty and risk aversion and freezing of highly developed financial markets. Domestic food price inflation as measured by the Wholesale Price Index (WPI) food sub index, though declining remains much higher than overall inflation.

The Survey expresses concern over the existence of hunger and widespread malnutrition despite the country achieving self-sufficiency in food production and with mounting public food stocks at its command. It says it is time that various interventions at the State and Central level addressing these issues are reviewed and redesigned.

The Survey says that India continues to retain its position as a preferred destination for investments. A recent study by UNCTAD found that India achieved a growth of 85.1 per cent in foreign direct investment flows in 2008, the highest increase across all countries. According to the study FDI investments into India went up from US Dollar 25.1 billion in 2007 to US Dollar 46.5 billion in 2008, even as global flows decline from US Dollar 1.9 trillion to US Dollar 1.7 trillion during the period.

While fiscal policy plays a dual role as a short-term counter-cyclical tool and an instrument to maintain microeconomic stability and promote growth in the medium term, the Economic Survey underlines the need to restore Centre’s fiscal deficit to the FRBM target of 3 per cent of GDP at the earliest. It says a number of factors will make it possible. They include reversal of much of the decline in business and corporate tax collections when growth accelerates from the second half of the year and the expected introduction of GST in 2010-11. On the monetary policy front the Survey says that high deposit rates have now come in the way of cutting lending rates at a pace which is consistent with the current outlook on inflation and the need for stimulating investment demands.

Reflecting on the high oil and other energy prices, the Survey says that as long as domestic prices remained below the cost of imports, demand would continue to grow, accentuating the negative impact of the terms of trade effect on national income. Referring to the volatility of global oil prices, it says, the fall could be a temporary respite and provides a golden opportunity to reform the pricing and control system. It says that as the low prices of oil has provided a temporary window for decontrol of petrol and diesel, this window must be utilised at the earliest. Other elements of energy policy such as open access to power, decontrol of coal also need to be addressed to have a viable long-term solution to our dependence on foreign oil and the debilitating effect of power failure.

The Survey says although the economy continues to face wide ranging challenges-the Indian economy has shock absorbers that will facilitate early revival of growth. The banks are financially sound and well capitalised, foreign exchange position remains comfortable and the external debt position has been within comfortable zone. The rate of inflation provides a degree of comfort on the cost side for the production sectors. Agriculture and rural demand continues to be strong and agricultural prospects are normal. The Survey says while there are indications that the economy may have weathered the worst of the downturn, the situation warrants close watch on various economic indicators including the impact of the economic stimulus and developments taking place in the international economy. Taking policy measures that squarely address the short and long term challenges would achieve tangible progress and ensure that the outlook for the economy remains firmly positive.


Interim Indian Railway Budget 2009-2010

Indian Railway Budget 2008-2009

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