The Prime Minister's Economic Advisory Council (EAC) in its recently released Economic Outlook 2010-11 is upbeat on the country's economic growth.
Continuing the recent trend of optimistic forecasts of GDP growth by international and domestic agencies, the EAC predicts the economy to grow by 8.5 per cent in the current year, climbing up to 9 per cent in 2011-12. Over the recent past all forecasters have been consistently bettering their earlier projections. The EAC itself had projected a growth rate of 8.2 per cent earlier this year. It is almost certain that the Reserve Bank of India, in its forthcoming monetary policy review, will mark up its projection to at least 8.5 per cent from8 per cent. The International Monetary Fund had, less than a month ago, forecast a whopping 9.4 per cent growth for the Indian economy in 2010. A growth rate of 9 per cent from next year seems sustainable and will clearly confirm the economy's resilience. The EAC's assessment for the current year is predicated on a strong rebound in agriculture, growing by 4.5 per cent, aided by satisfactory crop yields. Industry is expected to grow by 9.3 per cent and services by 8.9 per cent. These projections are in line with recent trends in the respective segments and are achievable. The monsoon has so far been satisfactory. The projected turnaround in the farm sector has however to be evaluated in the context of a low base last year when, on account of poor monsoons, floods and droughts, the sectoral growth rate was just 0.2 per cent.
Caveats
The EAC's overall upbeat assessment is subject to caveats. Inflation, which was at 10.55 per cent in June — more than twice its comfort level — has been a major worry over the past one year. Monetary tightening by the RBI seems inevitable as inflation has become more generalised.
Over the near tem, the government should release food stocks to dampen price rises. Low farm productivity needs to be tackled through a package of measures including superior water and soil management and rotation of crops. Infrastructure deficit is another major, persistent concern that has affected not only economic growth but India's competiveness.
On a more positive note, the EAC expects investments in fixed assets to recover strongly. Savings are projected to grow by 34.3 per cent this year, going up to 35.5 per cent in 2011-12. The external economy presents a reasonably satisfactory picture. The balance of payments is expected to be comfortable. The projected current account deficit of 3 per cent is easily manageable. Capital flows from abroad will remain strong. Weak recovery in the West suggests that India would remain an attractive investment destination.
