The Indian economy will have a complete new look in the next 5-7 years as numerous agreements have been concluded or are in the process of finalisation with the U.S., Russia, France, China, Japan, South Korea, Malaysia, the UAE and others. The super powers and the other developed countries are anxious to implement mega projects in nuclear power, space, transport and communication sectors. The four major powers — the U.S., Russia, France and China — are keen to implement nuclear and other power projects in a big way along with Canada. In other directions too, business agreements are being concluded as the U.S. interests alone have signed agreements for supplying Boeing commercial aircraft, military transport aircraft and engines from GE for being fitted in Light Combat Aircraft (LCA). Other contracts relate to supply of boiler, turbine and generating equipment and deep dredging vessels.
Russia, for its part, will be supplying two new reactors for the Kudankulam project and fighter aircraft of the latest design. The nuclear power programme has been ambitiously conceived as it is intended to install 18 reactors in three centres. Besides, there will be active cooperation between ONGC and its Russian counterpart for investing in hydrocarbon reserves in both countries, while a project for manufacturing butyl rubber at the Reliance complex in Jamnagar, with the knowhow being provided by a Russian enterprise is being envisaged. The expertise of the Indian pharmaceutical sector will be utilised for developing Russia's capability in this regard. The target for two-way trade has to be doubled to $20 billion with special attention being paid to the stimulation of Indian exports.
France has actually indicated its intention to invest up to euro 10 billion on various projects. China, for its part, has been anxious to eliminate irritants and lay emphasis on promoting two-way trade to $100 billion by 2015 as the present UPA Government was anxious to ensure balanced trade. The existing deficit is around $19 billion. What is important is the conclusion of 48 agreements involving Chinese investments of $16 billion in power and arrangements with financial institutions in both countries for facilitating credit availability. This list is only illustrative and not exhaustive.
Nuclear power projects
Since the nuclear power projects of France alone will result in the creation of 9,900 MW capacity and other nuclear suppliers too may be providing equipment for sizable capacity, the objective of achieving a target of 20,000 MW of nuclear power can be realised by 2020 and as much as 63,000 MW by 2032. These projects alone will involve heavy outlays. In other directions too the investments will be sizable. It has to be ensured how debt servicing and repayment obligations can be fulfilled with a doubling of exports to over $400 billion in four years. For realising the objective, the two-way trade with the U.S. is to be tripled while new efforts will be made to expand trade with Russia which is now at a relatively low level.
France, for its part, is aiming to expand trade to euro 12 billion, Japan $20 billion and Canada $15 billion. South Korea, Malaysia and others too will be stepping up their exports and imports. During the visit of the President of India to UAE, it was suggested that the $100 billion mark in two-way trade should be reached in five years from the present $43 billion excluding oil imports.
While it will be interesting to watch how various mega projects get implemented with funding arrangements imaginatively conceived, the performance of the economy in 2010-11 has been heartening with the output of food and cash crops at new high levels in some directions despite the serious damage sustained by standing crops in many regions. The agricultural sector and allied industries are likely to increase their production by 4.4 per cent against 1.2 per cent in 2009-10. The yield of kharif crops will be lower than the earlier estimate but it is hoped that the shortfall in yields of some crops will be more than off set by the harvesting of bumper crops in the rabi season. Though rice production will be around only 90 million tonnes the output of wheat may constitute a new record at over 82 million tonnes. The Union Minister of Agriculture Sharad Pawar has observed that the yield of pulses will touch a new peak of 16.5 million tonnes.
Cotton and sugar
While a higher output of pulses will facilitate a reduction in the quantum and value of imports, producers of cotton and white sugar have the advantage of realising high prices on exports with the prevalence of remunerative prices in world markets. The sugar industry too will not have a problem of marketing its record output of 250 lakh tonnes in the 2010-11 crushing season against 188 lakh tonnes in 2009-10. The industrial sector too has been acquitting itself creditably. Only the demand for cement has been adversely affected by excessive rainfall in many regions. The above prognosis is justified as industrial output has risen smartly by 10.8 per cent in October with the manufacturing industries functioning vibrantly. Capital goods production has risen smartly by 22 per cent and consumer durables by 31 per cent. Mining and power sectors too have acquitted themselves creditably. In April-October, the composite index has risen by 10.3 per cent against 6.9 per cent comparably.
GDP growth
The services sector has been faring well especially as software exports have been growing by over 10 per cent. On the basis of the encouraging performance of agriculture and allied industries and impressive progress of the industrial and services sector, Union Finance Minister Pranab Mukherjee has indicated that the growth in GDP in 2010-11 may be 9 per cent plus. The impressive rise in GDP is also being aided by the exemplary performance on the foreign trade front.
Exports
The details for April-November too are impressive with exports rising by 26.7 per cent to $140.3 billion and imports by 24 per cent to $222 billion mainly due to higher oil prices.
The cumulative deficit was thus $81.7 billion against $66.2 billion. In spite of the heartening performance of all the sectors inflationary pressures are still a cause for worry as imported inflation too may be halting the decline in the inflation rate.
Banks have no liquidity
Since the growth in deposits of banks has not been at the desired rate and there is an unsatisfied demand for credit. The banking system is not having the requisite liquidity. Efforts are being made by bankers to hasten the growth in deposits by increasing interest rates. But tangible results can be realised only over a period and the bottlenecks can be relieved only by larger inflows of forex resources and the adoption of helpful policy by monetary authorities.
Realising the need to eliminate the squeeze in the money market, the RBI has lowered the statutory liquidity ratio (SLR) to 24 per cent from 25 per cent and indicated its readiness to purchase securities up to Rs.48,000 crore through open market operations. As the Central Exchequer will be benefiting substantially by the upsurge in tax receipts over the budget estimates and also a big increase in non-tax revenues, it is being discussed in money market circles whether there will be a reduction in net borrowing through market loans.
