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Indian Economic Survey 2010

Contributed by Nirmal Bang

By Nirmal Bang

Economic Survey reading and indication for the budget:

- 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. 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. It has suggested a target of 68% of GDP for the combined debt of the Centre and states to be achieved by 2014- 15.

- Economic Survey has take note of the fact that industrial growth has been lagging due to infrastructural hurdles, particularly in energy and roads.

- ES has indicated that some of the labor intensive sectors like food, paper leather products have failed to revive in the current period. One may see certain incentives being given in these sectors in the budget.

- ES has cautioned that absorbing capital inflows from advance countries would be a challenge for India as it might lead to overheating of economy. So steps might be taken for curbing of foreign inflows in the country. However survey states that in case of service sector, a more conducive environment can be created by liberalizing FDI in health insurance, higher education and rural banking.

- ES suggested further reduction in excise for export oriented industries. These include tariff reforms by lowering the peak duties (custom) for merchandise sector from the present 10% to 7.5%, reductions of tariffs on all capital goods to a uniform 3% and further reduction in excise duties to make exports and industry competitive.

- Buoyed by the prospects of economy bouncing back to 9 per cent economic growth, the Economic Survey today suggested gradual roll back of stimulus steps. This would help cut down the fiscal deficit that is estimated at 6.8 per cent of GDP in 2009-10 that was driven by a fall in indirect tax collections and delay in 3G auction. The Survey stated that the fast-paced recovery of the economy underscores the effectiveness of the policy response of the government in the wake of the financial crisis. Moreover, the broad-based nature of the recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15 to 18 months.

Highlights of Fiscal year 2008-09

- The growth rate of the gross domestic product (GDP) in 2008-09 was 6.7%, with growth in the last two quarters hovering around 6 per cent. Economy is expected to grow at 7.2 percent in 2009-10, with the industrial and the service sectors growing at 8.2 and 8.7 per cent respectively. Economy likely to grow by up to 8.75 per cent in 2010—11.

- The overall agricultural gross domestic product (GDP) is estimated to have fallen by only 0.2% in 2009-10 (advance estimates) as against the previous year growth rate of 1.6%. This decline is due to the fact that the south-west monsoon was the most deficient since 1972.

- After reaching a low of 0.6 per cent during the second half of 2008-09, growth in the IIP revived to a level of 7.7 per cent during April-November 2009-10. The broad-based nature of the recovery was evident in the pick-up in growth of almost all major components of the IIP

- Gross domestic savings (GDS) at current prices in 2008-09 were estimated at Rs 18,11,585 crore, amounting to 32.5 per cent of GDP at market prices as against 36.4 per cent in the previous year. The fall in the rate of GDS has mainly been due to the fall in the rates of savings of the public sector (from 5.0 per cent in 2007-08 to 1.4 per cent in 2008-09) and private corporate sector (from 8.7 per cent in 2007-08 to 8.4 per cent in 2008-09).

- Budget for 2009-10 presented in July 2009 envisaged a growth of 5.1 per cent in gross tax revenue of the Centre and was estimated at Rs 6,41,079 crore (Rs 6,09,075 crore in 2008-09 provisional accounts and Rs 6,87,715 in BE 2008-09). While direct taxes were estimated to grow by 9.4 per cent from 2008-09 (prov.) levels, indirect taxes were estimated to grow marginally reaching a level of Rs 2,69,477 crore.

- Budget for 2009-10, continuing with the policy of fiscal expansion to boost aggregate demand, envisaged a fiscal deficit of Rs 4,00,996 crore, equivalent of 6.8 per cent of the GDP (6.5 per cent based on Advanced Estimates of GDP 2004-05 series).

- During the first half of 2009-10, total external debt increased by US$ 18.2 billion (8.1 per cent) to US$ 242.8 billion (Rs 1,166,217 crore). The current account balance [ (-) 2.4 per cent of GDP in 2008-09 vis-?-vis (–) 1.3 per cent in 2007-08] remained well within the sustainable limits and there was limited use of foreign exchange reserves, despite massive decline in net capital flows to US$ 7.2 billion in 2008-09 as against US$ 106.6 billion in 2007-08. Exports in April-December 2009 down 20.3 per cent. Imports in April-December 2009 down 23.6 per cent. Exports may again turn negative as demand for imports increases.