Painting a rosy picture on the eve of the Union budget, the Economic Survey 2009-10 argues for a gradual rollback of stimulus measures while projecting a robust GDP expansion of up to 8.75 per cent in 2010-11 on the back of a “remarkable recovery” growth expected at 7.2 per cent for the current fiscal.
Tabled in the Lok Sabha by Finance Minister Pranab Mukherjee on Thursday, the Survey noted that the stimulus packages by way of calibrated policy measures such as increased public spending and cut in excise duty and service tax helped the economy tide over the slowdown, which was triggered by the global financial turmoil, and the government’s focus should now shift to improving its kitty in terms of tax and non-tax revenue and containing the increased deficit.
Favouring a partial rollback of the stimulus, as was suggested by the Prime Minister’s Economic Advisory Council last week for a scale-up in excise and service tax rates as a measure of fiscal consolidation, the Survey said: “… The broad-based nature of the recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15-18 months ... so as to put the economy back on to the growth path of nine per cent annually.” Full recovery, it said, could be expected over the next two fiscal years with up to 8.75 (+/- 0.25) per cent growth in 2010-11 and nine per cent during 2011-12.
The current economic buoyancy in tandem with reforms would make India possibly the fastest growing economy in the next four years, the Survey said, pointing to the high levels of savings and investment. “The rates of savings and investment have reached levels that even ten years ago would have been dismissed as a pipe dream for India. On this important dimension, India is now completely a part of the world’s fastest growing economies … In fact, India is one of the growth engines, along with China, in facilitating faster turnaround of the global economy. Risks, however, remain.”
As for the risks and negative factors, the Survey cautioned that double-digit food inflation could lead to a “higher-than-anticipated” overall headline inflation, and called for effective measures aimed at removing supply-side bottlenecks in tandem with other farm growth-oriented policies.
The Survey was particularly critical of the government’s failure in not being able to check the “hype” over kharif crop failure, caused by an erratic monsoon, which did not take into account the comfortable food stocks and prospects of rabi production. This “may have exacerbated inflationary expectations, encouraging hoarding and resulting in a higher inflation in food items.”
As for the spurt in sugar prices, the Survey said: “Delay in the market release of imported raw sugar may have contributed to the overall uncertainty, thereby allowing prices to rise to unacceptably high levels in recent months.”
