Dr. C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister released the document ‘Review of the Economy-2009-10’ on February 19, 2010.
Following are the highlights of the document:
Strong rebound in the second half of 2009-10 drives growth rate upwards
Strong rebound in the third and fourth quarter especially industry
Outcome in the farm sector much better than feared earlier in part due to proactive
measures by government
Projected growth 7.2% in 2009/10, 8.2% in 2010/11 and 9.0% in 2011/12
In 2009/10:
Agriculture : -0.2 % (1.6% in 2008/09)
Industry (including construction) : 8.6% (3.9% in 2008/09)
Services: 8.7 % (9.8% in 2008/09)
Growth may be even higher than 7.2%, driven by strong revival in manufacturing and
construction
Developed countries have come out of recession but it is a weak recovery with downside risks to growth
Financial markets nervous about fiscal sustainability – massive increase in risk aversion
Worsening of budgetary positions in advanced economies
Speculative pressure on commodity prices, especially the sharp rise in crude oil prices
Sharp fall in investment rate in 2008/09 reversed in 2009/10
Estimated investment rate in 2009/10: 36.2% (34.9% in 2008/09). Will pick up with
improvement in domestic conditions.
Estimated savings rate 34.0% in 2009/10 (32.5% in 2008/09) – will improve in the
subsequent years due to fiscal consolidation by government
Strong recovery in manufacturing output will drive growth
Recovery in manufacturing output from June 2009
Q3 growth 14.3% (0.5% in 2008/09) , Q4 will be higher at 14.6% (0.3% in 2008/09)
Current Account Deficit : - 2.2 % of GDP in 2009/10 ( - 2.4 % in 2008/09)
Export recovery slower than expected, projected at $168.7 billion in 2009/10
Imports to show significant improvement in Q4. Projected at $296.8 billion in 2009/10
Projected merchandise trade deficit for 2009/10:$ 128.1 billion or 9.8 % of GDP.
Projected net invisibles: $98.6 billion. Strong growth in remittances and recovery in service
exports.
Capital inflows of $48.5 billion in 2009/10 ($8.7 billion in 2008/09)
Net accretion to reserves : $17.6 billion ( - $18.9 billion in 2008/09)
Surge in food inflation
Primary food inflation 17.9% in January 2010, manufactured food products 26.4% in
December 2009. CPI-IW 15% in December 2009.
In the short run, government must ease supply by increased distribution from stocks
and in the medium term by improving productivity.
Energy index and manufacturing goods index (except food) did not rise much for
most of 2009-10 but are now moving up.
Danger of significant transfer of food price inflation to the general price level in
2010/11.
Risk of rise in international commodity prices
Need for fiscal correction
Projected consolidated fiscal deficit: 10.3% in 2009/10 (10.4% in 2008/09).
Debt-GDP ratio 76.6% in 2009/10 (70.6% in 2000-01)
Large revenue and fiscal deficits of past two years unsustainable.
Possible reduction of fiscal deficit of centre by 1.0-1.5% in 2010/11
Feasible to reduce expenditure-GDP ratio by 1%
Expand service tax coverage. Unify the rate structure of CENVAT and service tax and
peg it between the current and the previous higher level.
