Economic Survey: Recovery on fast-track; inflation, deficit major concerns

Zeebiz Bureau

New Delhi: Finance Minister Pranab Mukherjee Thursday tabled a cautious but optimistic Economic Survey 2009-10 in Parliament, which predicted 7.2 percent growth for the current fiscal and a full recovery in 2011-12, while remaining concerned over inflation and fiscal deficit.

The Survey said Indian economy is well on a recovery track and is expected to expand by 8.25-8.75 percent in 2010-11 and even exceed 9 percent the year after.

"It is entirely possible for India to move into the rarefied domain of double-digit growth and even don the mantle of the fastest-growing economy in the world within the next four years," said the survey tabled by Finance Minister Pranab Mukherjee in the Lok Sabha, a day ahead of the federal budget.


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Industrial output in 2009-10 is estimated to be an upbeat 8.2 percent, according to the Survey

However, the government said inflation is a concern for the next few months and the recovery needs to be watched closely before taking a decision on the stimulus.

"As of now the outlook for inflation is conditioned by supply-side pressures in the near term," it added.

Survey Highlights

Growth

Economy seen growing 8.25-8.75 % in 2010-11

Economy expected to return to 9% growth in medium term

India FY11 growth seen 100 bps more than FY10

Medeum term prospects of economic growth “really strong”

India could be fastest growing economy in next four years

Expect GDP growth to breach 9% mark in 2011-12

Risk of second dip recession in advanced nations

India seems to be returning to pre-crisis growth rate

India medium, long-term growth prospects excellent

No reason why India can’t achieve double-digit growth

Clear Sign of recovery in industrial output

Largely contained risk to growth from poor monsoon

Food Prices

Food subsidy must be given directly to households

Food coupons must replace existing PDS system

Must identify poor for effective food coupon system

Possible to switch to food coupons system by 2012

India has ample stocks of wheat, rice

Wheat prices may moderate on hope of better harvest

Vegetable prices started to ease on rabi crop arrival

Food suibsidy must be given directly to households

Food coupons must replace existing PDS systems

Inflation

Concern of higher than expected inflation in coming months

Rapidly rising food inflation cause for concern

WPI inflation in FY10 out of sync with trend in previous years

Near-term supply pressure driving inflation outlook

WPI inflation expected to stabilize due to government steps

Signs food, fuel inflation spreading to other items

Current petroleum prices not viable in long run

Inflation largely due to supply-side bottlenecks

Supply crunch in some commodities on poor monsoon

Poor rain prevented seasonal food price fall post October

Hype about khariff failure exacerbated WPI expectation

Base effect, mild manufacturing WPI helped recovery

Divergence between WPI, CPI inflation rates declining

Food inflation may have peaked in December, seen easing

What, rice price rise on inflationary expectations

Low demand causing price moderation in mining FY10

Agriculture

Agriculture sector continues to be cause of concern

Need policy initiatives to raise farm growth to 4%

Likely to end FY10 with sufficient wheat stocks

Fear of pulses shortage may be causing price spurt

Higher sowing area of pulses may tame prices

Local sugar supply shortage causing price surge

Global sugar price rise likely on big imports by India

High inflation in milk from coarse cereals, oil cakes

FCI should be allowed to keep flexible buffer norms

Need to improve govt strategy for food releases

Govt shouldn’t have any dealing with fertiliser companies

Fertiliser companies should be allowed pricing freedom

Provide fertiliser subsidy to farmers

Introduce coupon system to subsidise fertilisers

Hype about kharif failure encouraged hoarding

Delay in release of imported sugar aided price rise

High food grain stock putting stress on fiscal health

Efficient stock management needs urgent attention

Govt food grain stocks adequate to meet PDS needs

FY10 farm GDP fall seen only 0.2% despite poor rains

Apr-Dec rice, wheat off take 35.8 mln tn, up 43% on ry

High MSP has potential to raise open market prices

Support price benefit to small farmers doubtful

Balancing needs to small farmers, consumers a challenge

Govt wheat buy cost seen 1,504.39 rupee/100 kg FY10

Govt rice buy cost seen 1,893.71 rupee/100 kg 2009-10

Wheat open market sale scheme helped stabilise price

Fall in sugar output put pressure on prices

2009-10 sugar output seen 16 mn tones

2009-10 edible oil import seen 10.1 mn tones

India 2009-10 edible oil supply seen 18.3 mn tones

India 2009-10 edible oil requirement seen 13.8 mln tn

Apr-Dec farm futures volume 38% of commodity trade

Kharif crop output loss may be partly made up in rabi

Grain yield increase not enough to meet rising demand

Research, better farm methods key to high crop yield

Need to focus on states with low crop productivity

Output, yield of pulses, oilseeds a growing concern

Scope of pulses import limited to tight global supply

Falling private investment in agriculture a concern

Cheap, timely credit must to up private investment in farming

Research on high yield seeds must to counter drought

Food security, stock management priority areas

Multi-cropping, raising yield key to higher output

2009-10 kharif grain area 66.8 mln ha, gown 4.6 mln on yr

Fertiliser use at 128.6 kg/ha in 2008-09

Oct-Dec post monsoon rains 8% above normal

NAFED oilseed buy 64,802 tn till Jan 4 on govt account

2009-10 coffee output seen 290,000 tn, up 10.6% on yr

Coconut palm insurance scheme to continue FY

Industry

Industry sector “revival” evident post economic slowdown

Indian industrial outlook “bright” in medium term

Downward trend in IIP growth stands reversed

Growth in capital goods segment below pre-2007 level

Growth in consumer durables aiding industrial revival

Textile exports continue to lag

Fertilizer output hit by raw material availability

Local steel industry revived from global slowdown

Local steel outlook for 2010 remains positive

Local steel demand back on “stable footing”

Local steel demand seen up on real estate, auto growth

FDI inflow in farm sector services grew highest in 2009-10

Services sector attracted highest FDI inflow FY 10

Govt mulling overseas urea, ammonia projects

Contribution of food products in manufacturing WPI seen down

Capacity addition in power, road sectors “lagging”

Infrastructure impediment hampering industry growth

Fiscal Policies

Indian economy has shown ‘V’-shaped recovery

Broad-base revival gives room for gradual stimulus cut

Fundamentals justify optimism for India in long run

Consider Finance Ministry panel suggestion to shape FY11 fiscal goals

Job losses seem to have reversed in recent months

Expect domestic oil output to grow on new discoveries

Food market condition, improved capital flow encouraging

Manufacturing sector showing buoyancy in recent months

Too early to say if buoyancy in manufacturing a trend

Seen substantial pick-up in corporate earnings, margin

Pace, shape of global recovery remains uncertain

Global recovery losing steam on stimulus cut

Transmission of monetary policy remains sluggish

Higher government borrowing raised banks’ SLR investments

Saving, investment rate good for medium term growth

Savings rate expected to rise further

Government should promote transparency in commodity futures

Impact of current subsidy system questionable

Monetary

RBI policy stance transmission to real sector critical

Fiscal rectitude important for Indian economy

Need to monitor credit flow to productive sectors

Need to ensure medium, long-term growth on even keel

RBI policy aims at expanding credit at viable rates

RBI stance aimed at steady growth via credit quality

States Market Borrowing Rs 106000 cr up to Jan 15

Money market mostly orderly in FY 10 on high liquidity

CBLO volumes over 80% of total money market volume FY 10

Liquidity condition remained comfortable in 2010

RBI’s Rs 57000 cr OMO buys FY 10 aided liquidity

Monetary easing main theme of liquidity management FY 10

RBI actively held apt liquidity via OMO, LAF, MSS FY 10

Banking

Growth in bank credit remained low in FY 10

Public sector banks better than private in credit growth

Growth in food credit low so far in FY 10

Need more transparency in micro-finance functioning

Computerisation of banking sector in completion stage

Rise in risk appetite increased capital inflows in 2009

Financial Institutions

Need to extend NPS to central, state autonomous bodies

Pension reforms made significant progress in India

Challenge to expand distribution network of NPS

Pension reforms to facilitate long-term savings

Interdependence of corporate, MFs rising concern

Markets

Govt intervention in markets should be minimal

Govt shouldn’t impose outright commodity futures ban

Equity market showed signs of recovery after April

Regulatory steps taken to make markets sound, stable

Seen revival in secondary market following stimulus

Volumes in currency futures on BSE not significant

Trading volumes in interest rate futures low

Retail investor participation limited in corporate debt market

Retail investor participation limited in mutual funds

Miscellaneous

Unique identity system to come into0 effect in 2012

Labour law reforms can improve Labour demand