The Indian economy is likely to grow above 7.0% in the current fiscal in the
midst of signs that the economic slump in the US and other advanced economies
is moderating and domestic demand will be supported by a good southwest
monsoon, said Finance Ministry in its Economic Survey.
Union Finance Minister Pranab Mukherjee Thursday presented the economic survey
in the parliament for the fiscal year 2009-10.
The growth of India’s economy may possibly improve and repeat its 2008-09
performance of around 7.0% in the current fiscal if the US economy bottoms out
by September 2009 and there is normal monsoon. India's gross domestic product
(GDP) growth could be as little as 6.25% if there are impediments in the US
revival, the report said.
A large domestic market, resilient banking system and a policy of gradual
liberalisation of capital account have been some of the key factors for the
Indian economy, however, a major concern at this stage though not entirely
unexpected is a sharp dip in the growth of private consumption, the report
Four factors seem to have contributed to this slowdown, first, it could have
been due to the wealth effect, resulting in slump in the equity and property
prices and secondly, the uncertainty in the labour market. Similarly, cutbacks
in consumer credit by private banks, non-banking finance companies (NBFCs) and
other lenders and finally, during the slowdown a dominance of precautionary
motive may have induced consumer to either put back their spending decisions or
shift towards unbranded alternatives.
Flexibility in the policy framework and initiatives taken so far provides
background for resumption and sustained high growth path, the report added.
Indian economy which is Asia’s third biggest economy grew by 6.7% during
2008-09—the slowest pace since 2003. This was largely due to a global credit
crunch followed by the recession. India's GDP grew by an average 9% in three of
the past four fiscal years.
Domestic industry has witnessed signs of upturn during the last fiscal,
according to the Economic Survey’s annual economic report card.
“Indian industry had to weather severe economic shocks but now it is
moving toward recovery,” according to the report.
— Economic growth decelerated to 6.7% in 2008-09 compared to 9% in 2007-08 and
9.7% in 2006-07.
— Per capita growth is at 4.6%.
— Deceleration in growth was witnessed across all sectors except for mining and
quarrying; agriculture growth fell from 4.9% in 2007-08 to 1.6% in 2008-09.
— Manufacturing grew at 2.4%, slowdown was ascribed for the decline in exports
and domestic demand.
— Global financial meltdown in developed economics was a major factor in
India’s economic slowdown.
— Investment remained relatively buoyant, ratio of fixed investment to GDP
increased to 32.2% in 2008-09 compared to 31.6% in 2007-08.
— Fiscal deficit to GDP ratio stands at 6.2%.
— Credit growth declined in the later part of 2008-09 reflecting slowdown in
general and the industrial sector in particular.
— Increased plan expenditure, reduction in indirect taxes, sector specific
measures for textile, housing, infrastructure through stimulus packages
provided support to the real economy.
— Merchandise export grew at a modest 3.6% (in US Dollar terms) while the
overall import growth is pegged at 14.4%.
— A large domestic market, resilient banking system and a policy of gradual
liberalisation of capital account helped in mitigating the adverse effect of
global financial crisis and recession quite early.
— Sharp dip in growth of private consumption is a major concern at this
— Medium to long-term capital flows likely to be lower as long as the
de-averaging process continues in the US economy.
— Revisiting the agenda of pending economic reforms is imperative to stimulate
the growth momentum.
–Yogesh Sapkale [email protected]