ECONOMIC SURVEY 2008-09

The Economic Survey 2008-09 presented to Parliament today by the Finance Minister Shri Pranab Mukherjee says, the speed at which the Indian economy returns to the high growth path in the short term depends on the revival of the economy, particularly the US economy and the Government’s capacity to push some critical policy reforms in the coming months. It says, if the US economy bottoms out by September 2009 there would be good possibility for the Indian economy repeating its 2008-09 performance i.e. around 7.0 +/- 0.75 per cent in the fiscal 2009-10 (assuming a normal monsoon). However, in the event of a more prolonged external economic downturn, the revival of the global economy/US economy being delayed until 2010, the growth may moderate to the lower end of the range.

It says the recovery is likely to be assisted by the likely developments in the external sectors. The declining trend in trade deficit suggests that with reasonable invisible account surplus, which has been an attribute of Indian economy for the last several years economy may end up with a current account surplus of 0.3 to 2.8 per cent of GDP in 2009-10.

The Survey says, the prospects of Indian economy are somewhat different from most other countries. A large domestic market, resilient banking system and a policy of gradual liberalisation of capital account have been key factors. The Survey says a major concern at this stage though not entirely unexpected is a sharp dip in the growth of private consumption. Four factors seem to have contributed to this slowdown. First, it could be due to the wealth effect, resulting from decline in the equity/property prices. Secondly, the uncertainty in the labour market and some decline in employment. Thirdly, cutbacks in consumer credit by private banks, NBFCs and other lenders. Fourthly, during slowdown a dominance of precautionary motive may induce consumer to either defer their spending decisions or shift to unbranded alternatives.

The Survey goes on to note that there are early signs of recovery in the global economy manifested in rising stock prices and increasing price of commodities. It is however, debatable whether rising prices are an indication of green shoots of recovery or a result of position taken by financial investors seeking to benefit from global recovery expectations. It says, though the financial crisis and the transmission of its impact on the real economy is now better understood and global financial conditions have shown improvement over the recent months, uncertainty related to the revival of the global economy remain. That makes it difficult to forecast the short-to-medium term growth prospects of the Indian economy.

The Survey says to counter the negative fall out of the global slowdown on the Indian economy, the Government responded by providing substantial fiscal expansion in the form of tax relief to boost demand and increased expenditure on public assets. The net result was an increase in fiscal deficit from 2.7 per cent in 2007-08 to 6.2 per cent of GDP in 2008-09. The difference between the actuals of 2007-08 and 2008-09 constituted the total fiscal stimulus not withstanding that some expenditure was on account of implementation of the Sixth Pay Commission Award and the Agriculture Debt Relief Scheme announced in 2008-09 Budget.

It says despite the slowdown in growth, investment remained relatively buoyant growing at a rate higher than at the rate of the GDP. The ratio of the fixed investment to GDP consequently increased to 32.2 per cent in 2008-09 from 31.6 per cent in 2007-08. This reflects the resilience of Indian enterprise, in the face of massive increase in global uncertainty and risk aversion and freezing of highly developed financial markets. Domestic food price inflation as measured by the Wholesale Price Index (WPI) food sub index, though declining remains much higher than overall inflation.

The Survey expresses concern over the existence of hunger and widespread malnutrition despite the country achieving self-sufficiency in food production and with mounting public food stocks at its command. It says it is time that various interventions at the State and Central level addressing these issues are reviewed and redesigned.

The Survey says that India continues to retain its position as a preferred destination for investments. A recent study by UNCTAD found that India achieved a growth of 85.1 per cent in foreign direct investment flows in 2008, the highest increase across all countries. According to the study FDI investments into India went up from US Dollar 25.1 billion in 2007 to US Dollar 46.5 billion in 2008, even as global flows decline from US Dollar 1.9 trillion to US Dollar 1.7 trillion during the period.

While fiscal policy plays a dual role as a short-term counter-cyclical tool and an instrument to maintain microeconomic stability and promote growth in the medium term, the Economic Survey underlines the need to restore Centre’s fiscal deficit to the FRBM target of 3 per cent of GDP at the earliest. It says a number of factors will make it possible. They include reversal of much of the decline in business and corporate tax collections when growth accelerates from the second half of the year and the expected introduction of GST in 2010-11. On the monetary policy front the Survey says that high deposit rates have now come in the way of cutting lending rates at a pace which is consistent with the current outlook on inflation and the need for stimulating investment demands.

Reflecting on the high oil and other energy prices, the Survey says that as long as domestic prices remained below the cost of imports, demand would continue to grow, accentuating the negative impact of the terms of trade effect on national income. Referring to the volatility of global oil prices, it says, the fall could be a temporary respite and provides a golden opportunity to reform the pricing and control system. It says that as the low prices of oil has provided a temporary window for decontrol of petrol and diesel, this window must be utilised at the earliest. Other elements of energy policy such as open access to power, decontrol of coal also need to be addressed to have a viable long-term solution to our dependence on foreign oil and the debilitating effect of power failure.

The Survey says although the economy continues to face wide ranging challenges-the Indian economy has shock absorbers that will facilitate early revival of growth. The banks are financially sound and well capitalised, foreign exchange position remains comfortable and the external debt position has been within comfortable zone. The rate of inflation provides a degree of comfort on the cost side for the production sectors. Agriculture and rural demand continues to be strong and agricultural prospects are normal. The Survey says while there are indications that the economy may have weathered the worst of the downturn, the situation warrants close watch on various economic indicators including the impact of the economic stimulus and developments taking place in the international economy. Taking policy measures that squarely address the short and long term challenges would achieve tangible progress and ensure that the outlook for the economy remains firmly positive.

 

Several steps taken to enhance domestic rupee liquidity


ECONOMIC SURVEY 2008-09

The Economic Survey 2008-09, presented by Finance Minister Pranab Mukherjee in Parliament today says variation in cash balances of the Central Government, capital flows and the concomitant foreign exchange operations of the Reserve Bank of India (RBI)were the key drivers of liquidity conditions during the year. RBI continued its policy of active management of liquidity during the financial year 2008-09 using CRR, Open Marked Operations (OMC) including the Market Stabilization Scheme (MSS) and the Liquidity Adjustment Facility (LAF) to maintain appropriate liquidity in the system so that all legitimate requirements of credit were met consistent with the objective of price and financial stability. Accordingly, monetary and liquidity management operations changed course beginning mid- September, 2008 in order to address the liquidity situation emerging from the unfolding global financial crisis.

The Survey says, Special Market Operations (SMO) were conducted by the RBI during the first week of June, 2008 to the first week of August, 2008 to improve access of public sector of companies to domestic liquidity and alleviate the lumpy demand in the foreign exchange market in the context of the unprecedented increase in international oil prices. The SMOs were, however, liquidity neutral in nature.

For more effective liquidity management and to ensure that the market borrowing programme of the Government was conducted in a non-disruptive manner, the scope of the SMO was widened with effect from February 19, 2009 by including purchases of government securities through an auction based mechanism in addition to purchases through the negotiated dealing system-order matching (NDS-OM) segment.

The Economic Survey 2008-09 says that in order to enhance domestic rupee liquidity, the cash reserve ratio (CRR) as a percentage of the Net Demand and Time Liabilities (NDTL) was redfuced by a cumulative 400 points from 9 per cent with effect from January 17,2009;the Statutory Liquidity Ratio (SLR) as a percentage of the NDTL was reduced by hundred basis point from 25 per cent to 24 per cent with effect from November 8, 2008; a term repo facility for an amount of Rs. 60,000 crore was instituted under the LAF to enable banks to ease liquidity stress faced by Mutual Funds (MFs) and

Non-Banking Financial Companies (NBFCs) with associated SLR exemption of 1.5 per cent of NDTL; an advance of Rs. 25,000 crore was provided to financial institutions under the Agricultural Debt Waiver and Debt Relief Scheme pending release of money by the Government; provision of a reference facility for an amount of Rs. 4,000 crore to the National Housing Bank (NHB) was undertaken to provide liquidity support to the housing sector and a refinance facility to the EXIM Bank was provided with a view to mitigating the pressures on Indian exporting companies.

 

Economic Survey 2008-09

Recognizing the importance of physical infrastructure on sustainability of growth and overall development, the Economic Survey 2008-09 states that spending on infrastructure has larger multiplier effects. The Economic Survey 2008-09 tabled in Parliament today mentioned that though there has been some improvement in infrastructure development in transport, communication and energy sector in the country in the recent year, there are still significant gaps that needed to be bridged. The current economic slow down provides an opportunities for countries like India that have a substantial degree of unmet infrastructure requirements.

According to the Economic Survey, the capacity creation in infrastructure sectors presented a mixed picture in 2008-09. While telecom and petroleum sectors performed well in 2008-09 as compared to the recent years, the power sector exhibited considerable shortfall. Most infrastructure sectors too witnessed subdued growth in production/services during 2008-09 because of slump in economic activity and commodity price, oil price shocks and overall global economic crisis. The Port and Air cargo growth slowed down considerably reflecting the sluggishness in import and export growth in second half of 2008-09. The rail freight growth too slowed down but to a lesser degree because the coal sector experienced robust production. In addition, the growth in telecommunication stood as exception a midst the general slowed down, the Survey adds.

In power sector, the Survey states, the growth of electricity generation by power utilities in 2008-09 was at 2.7 per cent which was much short of targeted 9.1 per cent. During 2008-09, despite the sharp decline in hydro and nuclear generation, the growth in total electricity generation was positive due to 5 per cent plus growth in thermal generation. The Survey mentions that less inflow of water into reservoirs in the case of hydro stations and for other power stations mainly due to fuel supply constraints as the reasons for negative growth in power generation. Keeping in view the target set by the National Electricity Policy 2005, a capacity addition of 78,700 MW has been set for the XIth Five Year Plan, of which 19.9 per cent is in the hydel sectors, 75.8 per cent thermal and the rest nuclear. The Survey mentions that a number of projects envisaged for the XIth Plan have made steady progress, with most of these in a position to be commissioned within the plan period. The Survey also lists out major reforms initiated in order to help power utilities to improve efficiency and commercial viability. The Ministry of Power signed the MOUs with the States to undertake time bound distribution reforms, the Survey adds. With a view to provide impetus to electrification of villages under the Rajiv Gandhi Grameen Vidyutikaran Yojana, the Economic Survey states that 59,882 villages have been electrified during the XIth Five Year Plan and electricity connections to 53.78 lakh BPL households have been released up to 31st March 2009.

The Survey states that during 2008-09, the petroleum sector has been affected by the wild swings in the international oil prices. The production of crude and its products witnessed slack growth in 2008-09 as compared to the previous year. The growth of 3 per cent in refinery production was mainly on account of impressive performance of private sector production. In 2008-09, while the production of crude oil declined but its consumption increased. In comparison, production of petroleum products increased by 3.9 per cent in the same year, while its consumption declined. The growth in diesel consumption declined to 8.4 per cent in 2008-09 as compared to 11.1 per cent in 2007-08 because of industrial and business slow down in sectors like automobiles etc. Giving details of the progress under New Exploration Licensing Policy (NELP), the Survey states that 203 Production Sharing Contracts have been signed since 1999, thereby increasing the area under exploration more than four times. As on April 1, 2009, investment commitment under NELP is about 10 billion US dollar on exploration, against which actual expenditure so far under the policy is about 4.7 billion US dollar. In addition, 5.2 billion US dollar investment has been made on development of discoveries, the Survey adds.

In the coal sector, raw coal production is provisionally estimated at 493.20 million tonnes in 2008-09 as against 457.08 million tonnes during corresponding period last year, thereby registering a growth rate of 7.90 per cent. The cooking coal production was 29.76 million tonnes during April-February 2009 as against 29.70 million tonnes in the corresponding period last year. The Survey mentions that due to the enhanced production by all stakeholders, the growth rate of raw coal production was increased to about 8 per cent during 2008-09 as compared to 6 per cent in the corresponding period.

Regarding National Highways Development Project (NHDP), being implemented by the National Highways Authority of India, the Survey states that 11,037 KM of National Highways has been completed by 31st March 2009, the bulk of which lies on Golden Quadrilateral (GQ). Nearly 98 per cent works on GQ have been completed by March this year and the North-South and East-West corridors are

expected to be completed by December this year. The Survey further adds that the Government has given approval for upgradation of 12,109 KM under NHDP phase III at an estimated cost of Rs. 80,626 crore; two-laning for 5,000 KM of National Highways under NHDP Phase IV at an estimated cost of Rs. 6,950 crore; six laning of 6,500 KM of National Highways under NHDP Phase V at a cost of 41,210 crore; 1000 KM express ways with full access control at a cost of Rs. 16,680 crore under NHDP Phase IV and construction of ring road grade separation intersection, flyovers, elevated highways, underpasses and service roads at a cost of Rs. 16,680 crore under NHDP Phase VII. For improving the road connectivity to the state capitals, district headquarters and remote places in the north-eastern region, a scheme Special Accelerated Road Development Programme is being implemented. The High Powered Inter-Ministerial Committee under the programme has approved the sub-subjects covering 1065 KMs at a cost of Rs. 3,378 crore under Phase A of the programme. The Survey mentions that the XIth Five Year Plan has projected an investment requirement of Rs. 41,347 crore (at 2006-07 prices) in rural roads. During the first two year of the plan an expenditure of Rs. 25, 780.70 crore has been incurred on rural roads under the Pradhan Mantri Gram Sadak Yojana.

Regarding Civil Aviation Sector, the Survey states that the expansion of the sector continued. However, the sector showed signs of slow down due to steep rise in cost of air turbine fuel and global economic slow down. The number of domestic passengers declined by 5 per cent during 2008 as compared to 2007. The silver lining was a growth of 14.55 per cent in the domestic cargo. The Surveys mentions about the massive modernization/expansion programme of International Airports at New Delhi, Mumbai, Kolkatta and Chennai. The Survey further adds that the Airports Authority of India is upgrading and modernizing 35 non-metro airports in the country in a time bound manner. Development of Airports in the North-Eastern Region is being taken up on priority basis.

The telecom sector continued to register significant growth during the year. With about 414 million connections till February this year, India’s telecommunication network is the 3rd largest and the second largest wireless network in the world. At the current growth rate, the target of 500 million connections by 2010 is well within reach. The tele-density also increased from 12.7 per cent in March 2006 to 35.65 per cent in February this year. The Government has taken several steps directed at reduction in entry barriers, creation of a level playing field between incumbents and new entrants and forward looking regulation. With the special thrust given to rural telephony, the number of rural telephones went up from 12.3 million in March 2004 to 112.71 million in January this year. Consequently the rural tele-density reached 13.81 per cent. Since January 2000 to December 2008, the total Foreign Direct Investment is Rs. 27,482.96 crore of which the inflow during 2008 is Rs. 11,595.48 crore. Recognizing the importance of increase broadband connectivity for growth of knowledge based society, several steps have been taken to promote broadband in the country. As a result, the broadband subscribers increased from 0.18 million in March 2005 to about 5.69 million by February this year.

Regarding Urban Infrastructure, the Survey states that under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), an additional central assistance of Rs. 50,000 crore for 7 years and an equal amount from the State Governments and urban local bodies was provided to the Mission cities for improvement in their civic services levels. Memorandum of Agreement for Urban Reform Agenda has been signed with 62 mission cities and 6 urban local bodies. The Mission cities have undertaken fresh initiatives under JNNURM with an objective to contribute to sustainable functioning of local bodies. Under a parallel scheme of Urban Infrastructure Development Scheme for Small and Medium towns for Non-Mission cities and towns launched in 2005-06, 747 projects have been sanctioned at an approved cost of Rs. 12,793.81 crore for 632 towns till March this year. The year 2008 being International Year of Sanitation, a National Urban Sanitation Policy was launched in November 2008 for transforming all towns and cities of the country into 100 per cent sanitized, healthy and livable spaces and ensuring sustained public health and improved environment to its citizen.

Recognizing the importance of quality infrastructure for sustainable growth, the Economic Survey emphasized the need of better coordination between two approaches being followed for infrastructure building so as to promote its balanced development through out the length and breath of the country. The Survey mentioned that a tangible progress has been made in attracting private investment infrastructure. However, such public initiatives are constrained by factors like inadequate shelf of bankable projects and shortage of long- term finance for projects. These are difficult issues but not insurmountable, given the resilience that the Indian economy its financial system has demonstrated amidst adversities, the Survey states.

ECONOMIC SURVEY2008-09

As per the Economic Survey 2008-09, the total amount disbursed by all Banks to the Agriculture and Allied Activities Sector is Rs. 2,64,455 crores as against the target of 2,80,000 crores registering 94.4% achievement. In comparison to the disbursement of Rs. 254657 crore as on March, 2008, there is a rise of Rs. 9798 crores to the sector. Of the total disbursement Rs. 202856 crores were from Commercial Banks, Rs. 35447 crores by Cooperative Banks and Rs. 25,852 crores by Regional Rural Banks.

During 2008-09( till February 2009), a total of 47.26 lakhs Kisan Credit Cards(KCC) amounting with limits aggregating Rs. 26828 crores were issued. The total number of KCC holders in the country as on February 28, 2009 stood at 808.00 lakhs.

Under the Agricultural Debt Waver and Debt Relief Scheme, the Government provided Rs. 25,000 crores to the Commercial Banks RRBs and Cooperative Credit Institutions as the first instalments Of this Rs. 17500 crore was provided to RRBs and Cooperatives as temporary liquidity support and Rs. 7500 crores to Commercial Banks.

ECONOMIC SURVEY 2008-09

The Sarva Shiksha Abhiyan (SSA) is being implemented in partnership with State Governments to address the needs of children in age group of 6-14 years The Economic Survey for 2008-09 tabled in Parliament today states that the achievements of SSA till December 2008 are opening of 2,76,903 new schools, construction of 2,25,383 school buildings, construction of 9,18,981 additional classrooms, 1,82,019 drinking water facilities, construction of 2,51,023 toilets, supply of free textbooks to 8.40 crore children appointment of 9.66 lakh teachers and in-service training for 23.82 lakh teachers. There has been a significant reduction in the number of out-of-school children on account of SSA interventions.

Following are instances of some of the expansion of higher educational institutions as per the Survey:

An ordinance has been promulgated under Article 123 of the Constitution for establishment of 15 Central Universities including the conversion of three State Universities into Central Universities – one in each such state which does not have a Central University, except Goa, which has not been included at the request of the State Government.

Six new Indian Institutes of Technology (IITs), one each in Bihar, Andhra Pradesh, Rajasthan, Orissa, Gujarat and Punjab have been set up during 2008-09. Classes have also been started from the academic session 2008-09.

One new Indian Institute of Management (IIM) namely the Rajiv Gandhi Indian Institute of Management (RGIIM) at Shillong in Meghalaya has started functioning from the academic session 2008-09.

Two new Indian Institutes of Science Education & Research (IISERs) have been set up at Bhopal and Thiruvananthapuram, which have started functioning with the academic session 2008-09.

A new Scholarship Scheme has been started to cover top 2 per cent of the student population of Class XII (equally divided between boys and girls on the basis of Class XII results) by providing them with scholarship of Rs. 1,000 per month for 10 months in a year for the first three years of undergraduate level studies and Rs. 2,000 per month for 10 months in a year for subsequent 2 years.

The Economic Survey also shows that the proposal for the third phase of expansion of the ICDS scheme for 792 additional projects, 2.13 lakh additional Anganwadi Centres (AWCs) and 77,102 mini-AWCs and a proposal for 20,000 AWCs on demand has also been approved in October 2008 and administrative sanctions have been issued to all states/Uts. This would take the total number of Anganwadi Centres to 14 lakh across the country with special focus on coverage of SC/ST and minority population. The financial norms for supplementary nutrition have been revised from Rs. 2.06 to Rs. 4.21 per beneficiary.