9% growth on track despite rising oil bill

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The Economic Survey 2010-11, tabled in Parliament on Friday by Union finance minister Pranab Mukherjee, is upbeat and sees the economy touching a growth rate of nine per cent in 2011-12.

The Economic Survey is confident that the Indian economy is poised to further improve despite risks of spikes in crude oil prices (exacerbated by the tension in North Africa and West Asia) and the threat of a second-dip recession in industrialised nations. The survey was also not worried about the slowdown in industrial production in recent months, saying it was more in the nature of “road bumps than an indication of any long-run problem”.
For the current fiscal, the economy is expected to grow at 8.6 per cent, it said.
The survey said inflationary pressure will persist, both from domestic demand and higher global commodity prices. However, it warned against taking sudden steps to slow down demand in order to control inflation as this would give rise to unemployment. It recommended that the current growth and inflation trends warrant persistence with an anti-inflationary monetary stance. The survey was against releasing free grains — a measure suggested by the Supreme Court — as it felt people could sell back such grains to the government, which offers higher minimum support prices for such commodities. It counselled against any legislation to control prices and blamed cartelisation rather than hoarding for the recent hike in vegetable prices. It recommended removal of barriers to the entry of new traders to break such cartelisation.
The Economic Survey predicted a moderation in the current account deficit as import growth started slowing down from October 2010 and exports began picking up from November 2010. It said that despite concerns expressed initially about record capital inflows, the country was able to absorb such funds. But it cautioned that it should not lull us into complacency. India will have to keep its options open to take corrective measures should these flows affect it adversely, it advised. It suggested that the government would need to work with the G20 countries, where each country tries to intervene minimally in the flow of capital, and, when it does intervene, it does so taking into account the externalities on other nations.
It projected fiscal deficit as 4.8 per cent of GDP, down from 6.3 per cent last year due to realisation of `1 lakh crore from the 3G spectrum auction and buoyancy in revenues. The survey made out a case for the gradual exit of stimulus provided to the industry to combat the impact of the global financial crisis of 2008-09. The Economic Survey outlined sweeping reforms in the areas of bureaucracy, environment clearance for infrastructure projects, early introduction of a goods and service tax and a second green revolution in the agriculture sector to ensure faster economic growth.