Indian Economic Survey 2009-10
The growth of broad money (M3) has moderated from around 21 per cent in the beginning of fiscal year to 16.5 per cent by mid January 2010 and it has remained below the indicated growth projection. While in the first half of the year, credit to the Government remained the key driver of money growth, it has moderated since the third quarter of 2009-10. The Survey says that since the outbreak of the global financial crisis in 2008, the RBI has followed an accommodative monetary policy supporting early recovery of the growth momentum.
This has also facilitated the unprecedented borrowing requirement of the Government to fund its fiscal deficit. Nearly two third of the borrowing of the Government was completed in the first half of the fiscal year which not only helped in checking pressure on interest rate but also created space for the revival of private investment demand in the second half of the year. The fiscal expansion undertaken by the central government as a part of the policy response to counter the impact of global slowdown has resulted in increased fiscal deficit from 2.6 per cent in 2007-08 to 6.5 per cent in the Budget Estimates for 2009-10.
The Survey says that the recommendations of the Thirteen Finance Commission have to be taken on board in shaping the fiscal policy for 2010-11 and in the medium term. The Finance Commission has recommended a calibrated exit strategy from the expansionary fiscal stance of 2008-09 and 2009-10. It has also suggested that the revenue deficit of the centre needs to be progressively reduced and eliminated followed by emergence of revenue surplus by 2014-15.
The Survey notes with satisfaction that several factors that have emerged from the performance of the economy in the last 12 months augur well for the Indian economy. The gross domestic savings as a percentage of GDP stands at 32.5 per cent in 2008-09 while the gross domestic capital formation stands at 34.9 per cent. These figures compare favourably with some of the fastest growing economies. It also underlines the significance of the presence of Indian corporations in the global market place.
The Survey is hopeful that the economy will go back to 9 per cent growth rate in the medium term. This follows the revival in investment and private consumption demand impressive growth in exports in November and December and remarkable turn around in Core infrastructure sector. It says, after a set back agriculture is gradually getting back to the projected path and with a reasonable one per cent additional growth in GDP coupled with recovery of global economy, the Indian GDP can be expected to grow around 8.5 per cent +/-0.25 per cent. With full recovery the economy can breach the 9 per cent mark in 2011-12. Given the steadily improving fundamentals of the economy, the Survey says, if there are improvements in infrastructure, both urban and rural, and reform in governance and administration, it is possible for India to move into double-digit growth and even become the fastest growing economy in the world within next four years.
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Indian Economic Survey 2008-09