Economic Outlook for 2009-10 - Highlights

Highlights

       The Indian economy weathered the financial turbulence well

·   6.7 % growth in 2008/09 – amongst the highest growth rates in the world.

·   well calibrated adjustments in the monetary and fiscal policies

Projected growth 6.5 % in 2009/10  against 6.7 % in 2008/09

·   Agriculture :  -2.0 %  (1.6% in 2008/09)

·   Industry (including construction) : 8.2% (3.9% in 2008/09)

·   Services: 8.2 % each. (9.7% in 2008/09)

            Unlikely that growth will be lower than 6.25 % but may reach 6.75 %.

      Impact of international conditions

·    Recession, higher household savings and demand contraction in developed  

             economies- adverse for exports growth.

·    Encouraging signs of revival of capital flows.

·   A further negative shock to the global financial system and global inflation could threaten growth in Indian economy.

      Investment rate unchanged from 2008/09

·   Projected investment rate in 2009/10: 36.5%. Will pick up with improvement in domestic conditions.

·   Projected savings rate 34.5% in 2009/10 (33.9% in 2008/09)

       22.7 % deficiency in the SW monsoon will lower agricultural output       

·   Large acreage losses under kharif foodgrain, mainly rice. Rabi prospects good

·   Projected food grain production:223 million tonnes in 2009/10 (234 mt in 2008/09)

       Current Account Deficit : - 2.0 % of GDP in 2009/10 ( - 2.6 % in 2008/09) 

·   Exports projected at $188.9 billion in 2009/10

·   Imports projected at $306 billion in 2009/10

·   Projected merchandise trade deficit for 2009/10:$ 117 billion or 9.4 % of GDP.

·   Projected net invisibles: $92.2 billion. Service exports & remittances have revived.

       Capital inflows of $57.3 billion in 2009/10 ($9.1 billion in 2008/09)

·         Net accretion to reserves : $31.6 billion ( - $20.1 billion in 2008/09)

       Surge in food inflation

·         13% annualized increase in overall WPI index and 33% for primary food index in first half of 2009/10. Sharper rise in CPI indices.

·         Global inflationary pressures will be high – oil and commodity prices rising

·         Inflation in March 2010 expected around 6%

       Improvement in financial conditions – global and domestic

·   Recovery in international loan and equity markets – lower LIBOR/CDS spreads

·   Bank credit sluggish till September 2009 but corporate sector raised large amounts from the domestic capital market through debt and equity issuance.

·   Calibration of monetary measures will depend on growth and inflationary pressures.

       Serious fiscal strain

·         Projected consolidated fiscal deficit: 10.09% in 2009/10 (8.6% in 2008/09). Higher revenue and primary deficit to persist.

·         Debt of centre and states as a ratio of GDP is projected to increase to over 77% in 2009/10

·         Need to return to fiscal consolidation

       Some Policy Options – focus on agriculture and power

·         Short Term - managing inflation, specially food price inflation

§   Protect and enhance rabi  crop.

§   Focus on strengthening PDS distribution system

·         Medium Term – Farm economy and power

§   Improve farm productivity – use technology optimally

§   Imperative need to achieve targets and  have an active plan over a

                  time horizon of 15 years for capacity creation in electricity

§   Actively explore fuel sources like natural gas and nuclear energy

Table A: Growth – Past Performance and Projections for 2009/10

 Table B.  Balance of Payments