India's economy is likely to pick up pace in 2013-14 and could grow at
6.1-6.7 per cent according to the Economic Survey tabled in Parliament
on Wednesday.
Here is a summary of the key points in the Survey:
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More than 6 per cent growth forecast for next fiscal considerable enhancement for social sector spending.
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India on verge of creating quality jobs to seize 'demographic dividend'.
Indian economy is likely to grow between 6.1 per cent to 6.7 per cent
in 2013-14 as the downturn is more or less over and the economy is
looking up. Following the slowdown induced by the global financial
crisis in 2008-09, the Indian economy responded strongly to fiscal and
monetary stimulus and achieved a growth rate of 8.6 per cent and 9.3 per
cent respectively in 2009-10 and 2010-11, but due to a combination of
both external and domestic factors, the economy decelerated growing at
6.2 per cent and an estimated 5 per cent in 2011-12 and 2012-13
respectively.
The Economic Survey 2012-13, presented by the Finance Minister Shri P.
Chidambaram in the Lok Sabha predicts that the global economy is also
likely to recover in 2013 and various government measures will help in
improving the Indian economy's outlook for 2013-14.
While India's recent slowdown is partly rooted in external causes,
domestic causes are also important. The slowdown in the rate of growth
of services in 2011-12 at 8.2 per cent, and particularly in 2012-13 to
6.6 percent from the double-digit growth of the previous six years,
contributed significantly to slowdown in the overall growth of the
economy, while some slowdown could also be attributed to the lower
growth in agriculture and industrial activities. But despite the
slowdown, the services sector has shown more resilience to worsening
external conditions than agriculture and industry.
For improved agricultural growth, the survey underlines the need for
stable and consistent policies where markets play an appropriate role,
private investment in infrastructure is stepped up, food price, food
stock management and food distribution improves, and a predictable trade
policy is adopted for agriculture. FDI in retail allowed by the
government can pave the way for investment in new technology and
marketing of agricultural produce in India. Fast agricultural growth
remains vital for jobs, incomes and food security.
The survey points out that the priority for the Government will be to
fight high inflation by reducing the fiscal impetus to demand as well as
by focusing on incentivizing food production through measures other
than price supports. But unlike the previous year, when food inflation
was mainly driven by higher protein food prices, this year the pressure
has been coming mainly from cereals.
On the Balance of Payments and External Position, the survey highlights
that with net exports declining, India's balance of payments has come
under pressure. Moreover, in the current fiscal, foreign exchange
reserves have fluctuated between US$ 286 billion and US$ 295.6 billion,
while the rupee remained volatile in the range of Rs 53.02 to Rs 54.78
per US dollar during October 2012 to January 2013.
The survey had a special chapter focusing on jobs. The future holds
promise for India provided we can seize the "demographic dividend" as
nearly half the additions to the Indian labour force over the period
2011-30 will be in the age group 30-49. India is creating jobs in
industry but mainly in low productivity construction and not enough
formal jobs in manufacturing, which typically are higher productivity.
The high productivity service sector is also not creating enough jobs.
As the number of people looking for jobs rises, both because of the
population dividend and because share of agriculture shrinks, these
vulnerabilities will become important. Because good jobs are both the
pathway to growth as well as the best form of inclusion, India has to
think of ways of enabling their creation.
The survey calls for a widening of the tax base, and prioritization of
expenditure as key ingredients of a credible medium term fiscal
consolidation plan. This along with demand compression and augmented
agricultural production should lead to lower inflation, giving the RBI
the requisite flexibility to reduce policy rates. Lower interest rates
could provide an additional fillip to investment activity for the
industry and services sectors, especially if some of the regulatory,
bureaucratic, and financial impediments to investment are eased.
On financial sector reform, it takes note of the high level of gross
NPAs (non-performing assets) of the banking sector which increased from
2.36 percent of the total credit advanced in March 2011 to 3.57 percent
of total credit advanced in September 2012. The survey suggests that
revival of growth will help contain NPAs, but more attention will have
to be paid to whether projects are adequately capitalized up front given
the risks.
Expenditure on social services also increased considerably in the 12th
Plan, with the education sector accounting for the largest share,
followed by health. In the 11th Plan period nearly 7 lakh crore rupees
has been spent on the 15 major flagship programmes. A number of
legislative steps have also been taken to secure the rights of people,
like the RTI, MGNREGA, the Forest Rights Act, AND THE Right to
Education.
However, the survey notes that there are pressing governance issues
like programme leakages and funds not reaching the targeted
beneficiaries that need to be addressed.
Direct Benefit Transfer (DBT) with the help of the Unique
Identification Number (Aadhaar) can help plug some of these leakages.
With the 12th Plan's focus on 'environmental sustainability', India is
on the right track. However, the challenge for India is to make the key
drivers and enablers of growth-be it infrastructure, the transportation
sector, housing, or sustainable agriculture-grow sustainably.
Dr. Raghuram G. Rajan, Chief Economic Adviser, Ministry of Finance
writes in an introduction to the Survey that these are difficult times,
but India has navigated such times before, and with good policies it
will come through stronger. Slowdown is a wake-up call for increasing
the pace of actions and reforms. The way out lies in shifting national
spending from consumption to investment, removing the bottlenecks to
investment, growth, and job creation, in part through structural
reforms, combating inflation both through monetary and supply side
measures, reducing the costs for borrowers of raising finances and
increasing the opportunities for savers to get strong real investment
returns.
RAJAT SINGH
PGDM 2nd SEM
IIMT COLLEGE OF MANAGEMENT
