In line with the recent optimistic forecasts by both official and non-official agencies, the pre-Budget Economic Survey estimates that the economy could grow by as high as 8.75 per cent during 2010-11 and move to 9 per cent the next year. It is a tribute to India's economic management that the economy seems certain to grow, so soon after the global crisis, by a highly respectable 7 per cent-plus this year. A double-digit growth does not seem out of reach within the next four years. Economic growth is well supported by strong fundamentals. Gross domestic savings stood at 32.5 per cent of GDP in 2008-09, while the gross domestic capital formation was 34.9 per cent. This record places India on a par with the world's fastest growing economies. The outlook for foreign trade is improving with both world output and trade volumes picking up, though how fragile the recovery is remains unclear. The broad-based recovery creates room for a gradual roll-back of the stimulus offered over the last 18 months. Those measures are necessary to push the economy back into the higher growth trajectory.
Pegging the gross fiscal deficit at 6.5 per cent of the GDP for this year, the Survey has recommended replacing the current defective subsidy schemes that control the issue prices of food, fertilizer, diesel, and kerosene by a system that places money directly in the hands of the beneficiaries to be used for purchases in the open market. At present, while the high level of subsidies meant a major fiscal burden for the government and consequently curtailed the scope for public spending in critical areas such as poverty alleviation, the benefits do not get substantially passed on to the targeted sections of the population. According to the Survey, it is a mistake to assume that a subsidy scheme has to be coupled with price control. The best way to intervene is to help the poor directly instead of controlling the price. However, the government is unlikely to dismantle marketing subsidies soon, ignoring political opposition. The high consumer price inflation is a major worry and a political embarrassment as well. Ominously since December, the high food prices and the gradual hardening of non-administered fuel prices are getting transmitted to other non-food items, and they are very likely to push the inflation further over the next few months. Many of the Survey's policy prescriptions are not new but their emphasis at this point is certainly significant. It remains to be seen how exactly its hard-headed economic analysis is tempered by political realities in the Budget.