Dr. C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister released the document ‘Review of the Economy 2011-12’ at a Press Conference in New Delhi today. Following are the highlights of the document:
Review of the Economy 2011-12
1. The rate of growth in 2011-12 is now estimated at 7.1%, which is marginally higher than the projection of 6.9% as per the Advance Estimates (AE). The Council projects a slightly higher growth for agriculture and construction than the Advance Estimates.
2. Investment activity has slowed down and as a result the Gross fixed Capital formation (GFCF) for 2011/12 has slipped to 29.3 per cent, a decline of almost 4 percentage points over the last four years.
3. Global economic and financial conditions likely to remain under pressure during the year.
4. Overall farm sector GDP growth for 2011/12 will average 3 per cent, riding high on record outputs for rice, wheat and strong trend growth in horticulture and animal husbandry.
5. Mining and quarrying sector likely to report negative growth for 2011/12 on account of weak coal output growth, restrictions imposed on iron ore production, decline in natural gas production and negative growth in crude oil output.
6. Electricity sector has performed well. It is expected to grow at 8.3 per cent during 2011/12.
7. Manufacturing and construction have been sluggish during the first three quarters of 2011/12. This may show improvement in the last quarter. The overall growth rate will be 3.9 per cent and 6.2 per cent respectively.
8. Strong growth in the services sector will continue with overall growth of 9.4 per cent for 2011/12.
9. For the year as a whole the Balance of Payment (BoP) position will be tight, this clearly indicates the need to keep the Current Account Deficit (CAD) within limits.
i. CAD has weakened, averaging 3.6 per cent (annualized) of GDP in the first half of 2011/12.
ii. CAD for the 2011/12 is projected to be 3.6 per cent.
10. Headline inflation has shown decline since November 2011 and more strongly in January 2012. It is projected to be around 6.5 per cent at the end of March 2012. Policies-both monetary and other public policies seem to have had the desired effect.
11. Sustained high food prices particularly on account of fruit, milk, eggs, meat & fish began to get passed into the price behaviour of manufactured goods.
12. Year-on year inflation for manufactured goods rose from around 5 per cent in September 2010 to 8 per cent in September and October 2011.
13. Expansion of the fiscal deficit beyond its budgeted estimate of 4.6 per cent of GDP -an area of concern. Government must strive to contain and improve the efficacy of subsidies.
Prospects for 2012/13
1. Economy is likely to grow in the range of 7.5 to 8 per cent. Mining and manufacturing are expected to show substantial improvement in 2012/13 over the previous year.
2. Inflationary pressure will continue to ease through 2012/13 and will remain around 5-6 per cent for the year.
3. Vigil to be kept on food prices-focus on production as well as rolling out of adequate food logistics network.
4. Greater need to invest in the infrastructure for both capacity creation as well as operational performance in coal, power, roads and railways.
5. Need to make adjustments on sale of refined petroleum products to reduce the huge burden of subsidy.
6. In the year 2012/13 CAD is projected to be around 3.0 per cent of GDP.
7. Efforts be made to keep the CAD between 2.0 and 2.5 per cent of GDP over the medium term.
8. Capital inflows particularly in the form of equity must be encouraged along with improved domestic conditions for investment and growth.
9. Government must effectively lay out a road map to achieve fiscal consolidation.
10. Government borrowing programme must not affect the financing needs of the private sector.
11. For the overall macroeconomic stability, attention must be paid to prices, exchange rate and fiscal balances.