Survey buoyant on growth; suggests gradual stimulus rollback

The Economic Survey predicts 8.75% GDP growth in 2010-11 while recommending a gradual roll-back of stimulus— a move that could entail a hike in excise duty and service tax.

A day before the general Budget, the Economic Survey of India on Thursday predicted 8.75% GDP growth in 2010-11 while recommending a gradual roll-back of stimulus—a move that could entail hike in excise duty and service tax, reports PTI.

Warning that high double-digit food price inflation could lead to higher-than-anticipated general level of inflation, the Survey called for effective steps to be taken to remove supply-side bottlenecks, together with other policies.

The Survey said the government policy, other calibrated measures and tax relief contained in the stimulus measures have helped the economy shrug off the effects of the slowdown triggered by the global financial meltdown in 2008.

The buoyancy in the economy, in tandem with reforms, would make India possibly the fastest-growing economy in the next four years, it said, while recommending that there was a need for improving the government’s financials by way of rasing tax and non-tax revenues and containing the Budget deficit.

Last week, the Prime Minister's Economic Advisory Council too had suggested a partial roll-back of stimulus measures, including raising excise duty and service tax rates.

The Survey also echoed this view: "...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 15-18 months... so as to put the economy back on to the growth path of 9% annually."

The economy is projected to grow by 7.2% this fiscal, with industrial and services sectors growing at 8.2% and 8.7%, respectivelly. Full recovery is likely over the next two fiscals, with up to 8.75% growth in 2010-11% and 9% in the subsequent year.

Critical about the government's policy, particularly over the very high consumer-price inflation, the Survey said that the "hype" over kharif crop failure without taking into account the comfortable food stocks and rabi prospects "may have exacerbated inflationary expectations encouraging hoarding and resulting in higher inflation  on food items.

"... in the case of sugar, delay in the market release of imported raw sugar may have contributed to the overall uncertainty, thereby allowing prices to rise to unacceptably high levels in recent months," it added.

Elaborating on the prospects in the short and medium term, the Survey observed that gross domestic savings stood at 32.5% of GDP in 2008-09, while the gross domestic capital formation (investment) was 34.9%.

"The rates of savings and investment have reached levels that even ten years ago would have been dismissed as a pipedream for India. On this important dimension, India is now completely a part of the world's fastest growing economies."

The Indian economy has been one of the least affected by the global crisis. "In fact, India is one of the growth engines, along with China, in facilitating faster turnaround of the global economy. Risks, however, remain," it added.
On the foreign trade front, which had taken a beating in 2009, the economic document said it is looking up, with prospects of recovery in global output and trade volumes.

The downside risks for world and Indian trade lie in the fact that though the fall has been arrested, both output and trade recoveries are still fragile, given the fact that the recovery has been pumped up by the fiscal stimulus injected by different countries, including India, the effects of which may dry up if natural recovery does not follow.
 

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