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