Low investment rate led to slow recovery
The Economic Survey 2011-12 said that the main reason for the recovery to be initially slow was slight decline in the investment rates with gross capital formation as a ratio of the GDP in the period between October to December being 30 per cent as compared to 32.3 per cent a year ago.
As fiscal consolidation gets back on track, savings and capital formation should begin to rise. “Moreover, with the easing of inflationary pressures in the months to come, there could be a reduction in policy rates by the RBI, which will encourage investment activity that could have a positive impact on the growth,” said the Economic Survey. It said that these factors, along with the fact that India’s investment rate is at 35.1 per cent “should result in growth consolidating in 2012-13 and picking up rapidly thereafter”.
It has raised concerns over the poor performance of the industrial sector in the current fiscal. “The share of industry in the GDP, which had peaked at 28.7 per cent, has now retreated to 27 per cent. This is an adverse move for an emerging economy. It is expected that this decline will gradually get reversed on its own, starting in 2012-13,” said the survey.
It said that India’s slowdown is rooted in domestic causes. “The persistent inflation that remained over 9 per cent for much of the year and needed to be tamed played a role. There were also the pressures of democratic politics, which slowed reforms,” said the Economic Survey.
It said that it will be difficult to meet the fiscal deficit target of 4.6 per cent of the GDP for 2011-12. “Revenues of the Centre have remained less than anticipated and with higher than budgeted expenditure outgo, a slippage is expected on the fiscal side, “ said the Survey.
On funding of large projects by the private sector, it raised questions whether the government should give guarantee to the investors.
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