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 said.

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.

HIGHLIGHTS:
— 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 stage.

— 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]