ECONOMIC SURVEY 2011-12

            Thursday (i.e.15.03.2012) Economic Survey for 2011-12 was released by the  Finance Minister in the parliament.

Following are the highlights of Economic Survey 2011-12:

Growth Rate, Inflation and Sectoral Composition:

Ø  Rate of growth estimated to be 6.9%. Outlook for growth and stability is promising with real GDP growth expected to pick up to 7.6% (±0.25) in 2012-13 and 8.6% in 2013-14. 

Ø  Agriculture and Services sectors continue to perform well. 2.5 % growth in Agro sector forecast. The average annual growth in agriculture and allied sectors realized during the Eleventh Plan Period was 3.3 per cent against the targeted growth rate of 4 per cent.Ø  Services sector grows by 9.4 %, its share in GDP goes up to 59%. 

Ø  Industrial growth pegged at 4-5 percent, expected to improve as economic recovery resumes.

Ø  Inflation on WPI was high but showed clear slow down by the year-end; this is likely to spur investment activities leading to positive impact on growth.  April-December average inflation of 9.4% highest in 10 years. High food inflation not unique to India. Inflation significantly above RBI''s comfort level

Ø  WPI food inflation dropped from 20.2% in February 2010 to 1.6% in January 2012; calibrated steps initiated to rein-in inflation on top priority.

Ø  As per the QE released by the CSO, gross domestic savings as a ratio of GDP at current market prices (savings rate) declined from 33.8 per cent in 2009-10 to 32.3 per cent in
2010-11.

Ø  Fixed investment as a ratio of GDP peaked in 2007-08 and has continued to register a decline since then, falling from 31.6 per cent in 2009-10 to 30.4 per cent in 2010-11.

Ø  At 2.8 per cent of GDP, the savings-investment gap during 2010-11 remained at the same level as in 2009-10.

Ø  The Sectoral Composition is Agriculture sector 13.9% Industry sector 27% and Service Sector contributes 59% to the GDP.

MONETARY MANAGEMENT

Ø  Reining in inflation and containing inflationary expectations were the dominating objectives of monetary policy during 2011-12. The RBI hiked the repo rate 13 times between March 2010 and January 2012, cumulatively by 375 basis points (bps).

Ø  During 2011-12, the growth rate in reserve money (M₀) has been 1.9 per cent (as on 10 February 2012) while broad money (M₃) growth has been 10.2 per cent (as on 27 January 2012). Year-on-year, non-food credit growth was 15.7 per cent at the end of December2011. Liquidity conditions have generally remained in deficit.

INTERNATIONAL TRADE

Ø  India’s share in global exports and imports also increased from 0.7 per cent and 0.8 per cent respectively in 2000 to 1.5 per cent and 2.2 per cent in 2010.

Ø  During the first half of 2011-12, India’s exports witnessed a high growth of 40.6 per cent.

Ø  Cumulative exports were at US $242.8 billion, registering a growth of 23.5 per cent during 2011-12 (April-January).

Ø  Imports in 2011-12 (April-January) at US$391.5 billion registered a growth of 29.4 per cent.

Ø  During this period, POL imports at US $ 118 billion grew by 38.8 per cent. Non-POL imports at US $ 273.5 billion grew by 25.7 per cent. Gold and silver imports of US $ 50 billion grew by 46.2 per cent.

Ø  Trade deficit (on customs basis) increased by 8.2 per cent to US$ 118.6 billion in 2010-11 from US$ 109.6 billion in 2009-10. However, trade deficit for 2011-12 (April-January) at US $ 148.7 billion was 40.4 per cent higher than the US $ 105.9 billion in 2010-11 (April-January).

BALANCE OF PAYMENTS (BoP)

Ø  The highlight of BoP developments during 2011-12 was merchandise exports of US$ 150.9 billion in the first half of the year, which represented an increase of over 40 per cent over the corresponding period in 2010-11. Imports of US$ 236.7 billion during April-September 2011 recorded an increase of 34.3 per cent over April-September 2010.

Ø  The trade deficit was higher at US$ 85.8 billion (9.4 per cent of GDP) during the first half of 2011-12 vis-à-vis US$ 68.9 billion (8.9 per cent of GDP) in the first half of 2010-11.

Ø  The current account deficit increased to US$ 32.8 billion in the first half of 2011-12, as compared to US$ 29.6 billion during the corresponding period of 2010-11, which was mainly attributed to higher trade deficit.

FOREIGN EXCHANGE RESERVES

Ø  In fiscal 2010-11, foreign exchange reserves increased by US$ 25.7 billion from US$ 279.1 billion at end March 2010 to US$ 304.8 billion at end March 2011.

Ø  In 2011-12, the reserves increased by US$ 6.7 billion from US$ 304.8 billion at end March 2011 to US$ 311.5 billion at end September 2011. Out of this total increase, US$ 5.7 billion was on BoP basis and the balance US$ 1.0 billion on account of valuation effect.

Ø  At end December 2011, reserves stood at US$ 296.7 billion and at end January 2012 at US$ 292.8 billion, indicating a decline of US$ 12.0 billion from US$ 304.8 billion at end March 2011. The decline in reserves is partly due to intervention by the RBI to stem the slide of the rupee against the US dollar.

EXCHANGE RATE

Ø  Rupee depreciated by 12.4% on monthly basis against US dollars.

Ø  Similarly, the monthly average exchange rate of the rupee depreciated by 11.5 per cent against the pound sterling, 9.1 per cent against the euro, and 18.7 per cent against the Japanese yen between March 2011 and December 2011.

EXTERNAL DEBT

Ø  India’s external debt stock stood at US$ 326.6 billion at end-September 2011, recording an increase of US$ 20.2 billion (6.6 per cent) over end March 2011 estimates of US$ 306.4 billion.

Ø  The maturity profile of India’s external debt indicates the dominance of long-term borrowings. The long-term external debt at US$ 255.1 billion at end September 2011 accounted for 78.1 per cent of the total external debt, while the remaining 21.9 percent was short-term debt.

Ø  Government (sovereign) external debt stood at US$ 79.3 billion, while nongovernment debt amounted to US$ 247.3 billion at end September 2011.

Ø  India’s external debt has remained within manageable limits as indicated by the external debt to GDP ratio of 17.8 per cent and debt service ratio of 4.2 per cent in 2010-11.

FISCAL DEVELOPMENTS

Ø  The outcome of resumed fiscal consolidation with a partial rollback of the stimulus was substantial, with fiscal deficit declining to 4.8 per cent of GDP in 2010-11 from 6.5 per cent in 2009-10.

Ø  The fiscal expansion was manifest in growth of over 10 per cent and 14 per cent in government final consumption expenditure and 12.3 per cent and 4.5 per cent in capital formation by government in 2008-09 and 2009-10 in terms of constant 2004-05 prices.

Ø  Besides, growth in indirect taxes minus subsidies, after declining to 14.7 per cent in 2008-9 and 10.4 per cent in 2009-10, rose to 28.7 per cent in 2010-11.

Ø  After declining to 5.5 per cent of GDP in 2010, the fiscal deficit is projected to fall to 4.5 per cent in 2011 and 4.1 per cent in 2012.

Ø  As a proportion of GDP, fiscal deficit of the central government fell from 6.5 per cent in 2009-10 to 4.8 per cent in 2010-11. With fiscal deficit of the states declining from 2.9 per cent of GDP in 2009-10 to 2.7 per cent in 2010-11, general government deficit declined to 7.9 per cent of GDP in 2010-11 from 9.4 per cent in 2009-10.

Ø  Fiscal deficit was less than 6 per cent of GDP in 2006-07 and 2007-08. It had increased in the crisis-affected years of 2008-9 and 2009-10 but declined to 7.9 per cent of GDP in 2010-11 and was budgeted at 6.9 per cent of GDP in 2011-12.

Trends in India’s social-sector expenditures

Ø  Expenditure on social services as a proportion of total expenditure increased from 21.6 per cent in 2006-07 to 24.1 per cent in 2009-10 and further to 25 per cent in 2011-12 (BE).

Ø  As a proportion of the GDP, this share increased from 5.57 per cent in 2006-07 to 7.34 per cent in 2010-11, helping India face the global crisis without much adverse impact on the social sector.

Ø  In 2011-12 it is expected to be 6.74 per cent as per the BE. While expenditure on education as a proportion of GDP increased from 2.72 per cent in 2006-07 to 3.11 per cent in 2011-12 (BE), the expenditure on health increased from 1.25 per cent in 2006-07 to 1.30 per cent in 2011-12 (BE).