Finance Minister’s Address at Economic Editors’ Conference -2010
Finance Minister Shri Pranab Mukherjee inaugurated the Annual Economic Editors’ Conference, here today. Following is the text of his address:
“Ladies and Gentlemen,
It gives me great pleasure to welcome you all to this annual conference, which has now become an important platform for Government-media interaction on development and economic policy issues in India. I am particularly pleased to welcome journalists and editors from across the country representing different vernacular languages and also those from the English and Hindi media, who are participating in this conference.
With greater transparency in governance and policy making and easier public access to information and data, policy formulation in India is becoming a collaborative exercise. This event provides another opportunity for us to share and explain the Government’s thinking on policies and the initiatives being taken to address the issues confronting the nation. The feedback and views of the media and through media the views of the public will provide valuable inputs to improve policy formulation and its implementation in the country.
The Mid-Year review of the economy is currently under-way and I expect this interaction to raise issues and provide valuable inputs that we can take back to that exercise.
Since the last meeting of Economic Editors in November 2009, I am happy to share that the economy has responded strongly and is well on its way to regaining the growth momentum of the years prior to the global slowdown. There are several factors that have contributed to this, including the timely impact of various fiscal and monetary policy measures, the underlying fundamentals of the economy and the recovery, though still weak, of the global economy.
Let me spell out briefly the salient features of this growth recovery, some major policy developments and the prospects of the economy in the short to medium term.
India recorded a GDP growth of 7.4 per cent in 2009-10. It has been further consolidated in the current fiscal year with growth in the first quarter estimated at 8.8 per cent. This is in line with the GDP projections of 8.5 ± 0.25 per cent growth in 2010-11, made in the Economic Survey. The recovery is broad based with growth improving in all the three sectors, industry, services and agriculture.
The sharp recovery in growth reflects the strengths of our economy’s fundamentals and its underlying dynamics. That this growth came about in a year with sub-normal monsoon indicates two things:
First, the economy is more resilient to cyclical changes in agriculture due to a decline in the share of agriculture in GDP.
Second, at an aggregate level the compositional changes within the agriculture sector are able to counter balance the impact of rainfall deficit. Unlike in the past, even as recently as 2002-03, a major deficiency in monsoons may not necessarily lead to a negative growth/decline in agriculture production.
On the demand side, the pick up in investment growth in 2009-10 seems to be continuing in the first two quarters of the current fiscal. There are also signs of consumption growth moving towards its trend rate. The recovery is led by industry and with improved growth in services; we should look to hit the 9 per cent plus growth path in the near future.
Last year I had mentioned that fiscal consolidation was a policy imperative and I promised to revert to a prudent fiscal path as soon as the economic situation so permitted. I have redeemed that promise. The clear signals of economic recovery necessitated a partial roll back of the fiscal stimulus measures which I duly reflected in the Budget for 2010-11. The fiscal deficit was budgeted to come down from a level of Rs.4,14,041 crore in RE 2009-10 to Rs.3,81,408 crore in 2010-11 BE, which as a proportion of GDP amounts to a decline from 6.7 per cent to 5.5 per cent.
The partial restoration of the tax cuts, compression in expenditure and revenue from 3G auction and disinvestment will help us in meeting our fiscal targets for the current year. In my Budget proposals for 2010-11, I presented an ambitious policy package which included a move towards a nutrient based fertilizers subsidy regime culminating in direct transfers to farmers at a later date; flexible petroleum pricing policy with levels of subsidy calibrated to international crude prices; public expenditure management; a new Direct Tax Code; and progress towards goods and services tax. We have made progress in all these areas.
The medium term Fiscal Policy Statement 2010-11 has outlined a decline in fiscal deficit to 4.8 per cent of GDP in 2011-12 and 4.1 per cent of GDP in 2012-13. It is our intention to have a gradual and sequenced exit from stimulus, keeping in focus long-term fiscal sustainability concerns. The process of fiscal consolidation is accordingly calibrated to be supportive of growth in the medium term and is broadly in line with the recommendations of the Thirteenth Finance Commission.
As per the data made available by Controller General of Accounts gross tax revenue have so far grown by 27.3 per cent, which compares favourably with a negative ( -) 11.6 per cent growth last year and 17.9 per cent estimated in the Budget proposal for this year. The total revenue receipt have increased by 85.0 per cent as compared to negative (-) 2.7 per cent last year, mainly on account of the bonanza from telecom spectrum auctions and robust growth in excise and customs duty receipts of 43 per cent and 60 per cent, respectively. Total expenditure has grown by 30.4 per cent, as against 22.8 per cent achieved last year.
The first batch of supplementary demands from grants presented to Parliament envisages a net cash outgo of Rs. 54,589 crore. Fiscal and revenue deficits proportions of BE are thus placed at 39.7 per cent and 36.3 per cent, and look healthy when compared to the moving average of last five years at 64.0 per cent and 95.8 per cent. The impact of one-off nature of revenues might taper off in the months to come with a pickup in expenditure and moderation in the levels of growth in revenues.
Now, I turn to the issue of macroeconomic stability. The year 2010-11 started off with a headline inflation of 11.0 per cent in April 2010 in terms of Wholesale Price Index on the revised base year. After remaining in double digits till June 2010, inflation has moderated to reach 8.6 per cent in September 2010. In terms of consumer price indices, inflation in the three major groups (industrial workers, agricultural labour and rural labour) have all come down to single digit level. Food prices have been the main driver of inflation.
A number of anti-inflationary measures were announced by the Government to tackle this problem. These include: selective ban on exports and futures trading in rice and some pulses, zero import duty on select food items and removal of restrictions on licensing, stock limits and movement of food articles under the Essential Commodities Act of 1955. Permission was given to import of pulses and sugar by public sector undertakings. Distribution of imported pulses and edible oils was permitted through the Public Distribution System (PDS) and a higher quota of non-levy sugar was released.
In addition, a Standing Core Group of Chief Ministers and concerned Central Ministers has been constituted on 15th March, 2010 to discuss issues related to prices of essential commodities with Ministry of Agriculture as nodal agency.
The Reserve Bank of India (RBI) as part of the monetary policy review has taken suitable measures to moderate demand to levels consistent with the capacity of the economy to maintain growth without price rise. It has raised its key policy rates since April, 2009. On September 16, 2010 the RBI raised the repo rate to 6.0 per cent and reverse repo rate to 5.0 per cent.
A robust domestic demand coupled with a weak global demand has resulted in a widening of the trade deficit, which has spilled over into higher levels of current account deficit. However, the strong domestic demand and robust investment climate in the country has resulted in a surge in capital inflows, which have helped finance the higher level of current account deficit.
The current levels of capital inflows, which exceed financing requirements of our current account deficit, have put pressure on the Rupee, resulting in its appreciation in the last few months. This has implications for our exports. We have faced similar situation in the past and have overcome it without taking recourse to some of the more stringent policy measures that are by now well known to discerning analysts.
On the whole, notwithstanding continued concerns on inflation, the macroeconomic environment, both domestic and on the external front, is far more comforting at present than last year.
In the short term it is reasonable to expect that the economy will go back to the robust growth path of around 9 per cent average that it was on before the global crisis slowed it down in 2008. To begin with, there has been a revival in investment and private consumption demand, though the recovery is yet to attain the pre-2008 momentum. Second, Indian exports have recorded impressive growth since November December 2009. The favourable capital market conditions with improvement in capital flows and business sentiments are also encouraging. Finally, the manufacturing sector has been showing a buoyancy reminiscent of the pre-slowdown years. There is also a substantial pick-up in corporate earnings and profit margins.
Our objective is to harness this growth to make the development process more inclusive, strengthen food security, improve education opportunities and health facilities both in rural and urban areas. At the same time we are looking to address the weaknesses in our systems, structures and institutions at different levels of governance, making the public delivery mechanisms more robust and transparent, and sharply focus on the role of Government as an enabler.
The Budget for 2010-11 following the earlier budgets has provided for higher outlays for the flagship schemes. Mahatma Gandhi NREGS alone has been provided a sum of Rs. 40,100 crore in the current financial year. Nearly 5.26 crore households were provided employment under the scheme in 2009-10. During 2010-11, so far (4.10.2010.), 3.05 crore households have been provided employment under the scheme; 92.96 crore person-days have been created of which 22.21 percent and 17.8 per cent were in favour of SC and ST population respectively and 50.33 per cent of the total person days went in favour of women.
Financial Inclusion is an important priority of the Government as only about 38 per cent of the 85292 bank branches of Scheduled Commercial Banks are in rural areas and only 40 per cent of the country’s population has bank accounts. To address this need, the Government has directed all banks to provide appropriate banking facilities to habitations having population in excess of 2000 by March, 2012 using various models and technologies including branchless banking through Business Correspondents (BCs). The banks have formulated their road maps for Financial Inclusion and have identified about 73,000 habitations having a population of over 2000 for providing banking facilities.
“Swabhiman” - a nationwide programme on financial inclusion, estimated to cover approximately 5 crore households, is now ready for roll out.
“Swavalamban” - a co-contributory pension scheme for workers in unorganized sector, has been launched on 26.9.2010. The Central Government shall contribute a sum of Rs.1,000 per annum to the workers in unorganized sectors who contribute a sum of Rs.1,000 to Rs.12,000 per year in their pension accounts during the financial year 2010-11, are not in regular employment of the Central or the State Government or any of their entities, or not covered by any of the Social Security Scheme. Government has targeted 10 lakh workers from un-organized sectors each during the initial four years of the implementation of Swavalamban Scheme totalling to 40 lakh subscribers by March, 2014. For the purpose, PFRDA would also be undertaking extensive financial literacy and awareness campaigns in association with the Aggregators.
In the financial year 2009-10, the Government had announced the ground level credit target for agriculture at Rs 3,25,000 crore. The total credit flow to agriculture during 2009-10 was of the order of Rs. 3,66,919 crore, which is 113% of the annual target. For the financial year 2010-11, the Government has set agriculture credit flow target at Rs 3,75,000 crore.
On the reforms front, there has been considerable progress in some of the announcements that I had made at the time of the Budget. Disinvestment is broadly on track. The Initial Public Offering of Coal India Limited opened for public subscription on 18th October, 2010 has been an unqualified success. Direct Taxes Bill 2010 which was introduced in the monsoon session of the Parliament is now being considered by the Standing Committee. Petroleum pricing has been made flexible taking due care of the stakeholders and consumers. I believe the movement towards goods and services tax would also be possible in due course with the cooperation of all stakeholders.
It is often said that reforms in India are slow reflecting the democratic sanction process; but nevertheless sure as it has larger backing. Going forward, I believe the Indian economy would take its rightful place in the global economic order in terms of not only macroeconomic aggregates, but also in terms of human development indices.”