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03-16-2012, 09:45 AM #1
Budget 2012: Economic Survey exudes hope, optimism and caution
The survey projects economy to rebound to 7.6 percent growth from a three-year low of sub 7 percent growth in 2012-2013. Growth for 2011/12 is pegged at 6.9 per cent. GDP is expected to rise to 8.6 percent in 2013/14 on the back of agriculture, services and industrial sectors. The survey states that India remains among the fastest-growing economies of the world and outlook for growth and stability is promising.
While the survey paints a fairly upbeat picture of the economy it also underscores the need for an aggressive fiscal consolidation strategy. And cautions that it will be a tight walk for the government which will have to be restrained in pruning the fiscal deficit and not exacerbate immediate growth deceleration. Growth faltered to a three-year low of 6.1 percent in the December quarter.
Investments, which are intrinsically linked to a country's growth, have been on a decline. According to CSO's advance estimates, investment rate is expected to drop to 29.3 per cent of gross domestic product (GDP) in fiscal 2011/12 from 30.4 per cent a year earlier. Four years ago investment rate accounted for 32.9 per cent of GDP. Read more on: Budget 2012: Pranab should focus on boosting investment to accelerate growth - Business Today. The Economic Survey predicts, as fiscal consolidation gets back on track, savings and capital formation should begin to rise.
Inflation is also expected to moderate further to 6.5-7 percent by March 2012, and that could prod the Reserve Bank of India to reduce policy rates and that could bring in investment and have a positive impact on growth.
Sectors which have been identified as key growth drivers such as agriculture and industrial, have also been highlighted for special attention. The survey reiterates need to modernise agriculture and revive investment in the industrial sector.
The economic survey is one of the most important financial documents that indicate the country's financial health. Economic Survey 2011-2012, in a nutshell, says that India will return to its high growth trajectory, inflation will come down, investments will revive and industrial activity will pick up substantially. It also says that India is far more interlinked with the global economic scenario than ever. India's share of trade to GDP of goods and services has tripled between 1990 and 2010. The survey highlights some daunting challenges which are expected to get bigger such as that of land acquisition and infrastructure shortage.
While hope and optimism is encouraging, one could look at the survey projections with a hint of scepticism, after all India will miss the 2010-2011 survey growth projection of nine percent by nearly two per cent. Policy paralysis and political volatility are hard to predict.