Inflation will remain a priority for the government which projected over 9 per cent economic growth in the next fiscal even as downside risks emerge from rising oil prices due to turmoil in the Middle-East.
The Economic Survey 2010-11, tabled in the Lok Sabha by Finance Minister Pranab Mukherjee, said tight monetary policies would have to stay to curb inflation and mitigate global risks such as rising food and commodity prices and debt problems in the European nations.
Ahead of the general Budget, the Survey made out a case for gradual exit of stimulus provided to the industry to combat the impact of the global financial crisis in 2008-09.
Insisting that the inflation is clearly the “dominant” concern, the Survey said “Current growth and inflation trend warrant persistence with an anti-inflationary monetary stance”. Consolidation of fiscal deficit would also be essential to check the price rise, it added.
“Inflation is a matter of great concern, no doubt. Just one year ago in February 2010 food inflation was as high as 20.2 per cent...though it is high but it has come down in January...still it is an area of concern and we shall have to work on it, particularly in the context of global economic crisis,” Mr. Mukherjee told reporters after tabling the Survey.
The Survey, considered a report card on the economy, listed rising international oil prices and sovereign debt problems in the Euro zone and the political turmoil in the Middle-East as the downside risks for the Indian economy.
Higher current account deficit due to impact of fragile global recovery on Indian exports and increasing domestic consumption was listed as an area of concern.
“The problem may be further aggravated by the rising international oil prices,” it added.
For the current fiscal, the Survey said, the economy would grow by 8.6 per cent, up from 8 per cent a year ago. “It is expected that the growth will breach the 9 per cent mark in 2011-12,” reaching the pre-crisis levels.
The Survey also suggested a set of reforms, including streamlining of land acquisition and environmental clearance norms, to expedite infrastructure projects, a crucial driver of growth.
Besides, it also pitched for opening of the Foreign Direct Investment (FDI) in multi-brand retail starting with metro cities. “FDI in retail may help bring in technical knowhow to set up efficient supply chains which could act as models of development,” the Survey.
It also pressed for reforms in banking and insurance sector.
The Survey suggested private participation in social sectors such as health and education in the form of public-social-private-partnership to supplement the government efforts.
India, the Survey said, needs a policy to bring another round of multifaceted reforms for the industrial sector to have a sustained double-digit output growth in the medium to long term.
In the short-term, the sector is likely to grow at moderate but sustainable rate. However, increasing cost of financing and slowdown in foreign equity inflows in the current financial year are causes for concern.
“Over the medium to long term, to sustain double-digits output growth and reduce the vulnerabilities of the sector, there is a need to put in place a policy framework for embarking on another round of multifaceted reforms,” it said.
It also pitched for giving banking licences to industrial houses wanting to set up banks to promote the goal of financial inclusion.
“As regards allowing industrial houses, business houses and NBFCs to promote banks, they may be allowed full banking license with provision for avoiding conflict of interest issues,” it said.
On India’s exports, it said that shipments will surpass the $ 200 billion target for the current fiscal and the gradual roll-back of stimulus measures is not likely to impact growth of the country’s overseas shipments.
On insurance, it said that there will be different set of norms for life and non-life insurance companies for coming out with a public float.
“It is proposed that the disclosure requirements for life and non-life companies would be separately mandated given the nature of their respective business,” the Survey said.
It added that investors would be required to be made aware of the financial performance, company profile, financial position, risk exposure, corporate governance and management of these companies.
To contain excessive flow of foreign capital, it said that India should work closely with G-20 countries to take collective steps.
“We will have to keep open the options of having to take corrective measures, should these flows affect us adversely. The most important step in this context is to work with the G-20 countries and try to figure out collective decision rules, whereby each country tries to intervene minimally in the flow of capital,” the Pre-Budget Survey said.
It further said, “When it does intervene, it does so taking into account the externalities on other nations.”
The continuing debt turmoil in the euro zone area could have adverse fallout on the Indian economy, hurting its capital flows as well as exports, it added.
The Economic Survey pegged the fiscal deficit for 2010-11 at 4.8 per cent, lower than the Budgetary estimates of 5.5 per cent, on the back of higher realisation from 3G spectrum auction and buoyancy in revenues.
India’s fiscal deficit had ballooned to 6.3 per cent of the GDP in 2009-10 in view of stimulus spending worth billions of dollars to combat global financial meltdown, and was pegged at 5.5 per cent for the current fiscal.
Calling for bold reforms in the power sector, the Economic Survey asked the states to reduce subsidies and cross-subsidies on electricity and hike tariffs.
India currently has one of the lowest and most uneconomical average electricity tariffs in the world -- 8 cents per unit at the retail level, compared to about 12-15 cents in countries endowed with more coal or gas and 19-10 cents per unit elsewhere, it said.
On agriculture, it said that special efforts are required to promote production and productivity of all coarse cereals to ensure food and nutritional security of India.
“There is every reason to promote the production of coarse cereals particularly in the rain-fed areas by increasing investment in research and the schemes,” the Survey tabled in Parliament by Mr. Pranab Mukherjee said.
Further it warned that India, despite being the world’s largest producer, could become a net importer of milk in next decade if the growth in the sector is not accelerated to 5.5 per cent annually.
The report said the country has not been able to keep pace with the domestic demand for milk which is growing at about 6 million tonnes annually.
